PILON stands for ‘payment in lieu of notice’. PILON redundancy refers to situations in which an employee who has been made redundant stops working for you immediately, but you still pay them in full for their notice period. As an employer, if you do not adhere to your legal obligations relating to PILON by, for example, failing to pay the right amount, you may be subject to employment tribunal proceedings. Therefore, it is essential that you understand the rules relating to PILON and ensure you act in accordance with them.
At GAP HR, our expert HR advisors provide dedicated HR support and guidance to small businesses, specifically those that are owner-managed. If you find yourself in a position of having to make redundancies, we will work with you every step of the way, ensuring your processes are fair and lawful, and minimising the risk of ex-employees issuing an unfair dismissal claim against you.
Call us now on 01491 598 600 or Click Here to Make An Enquiry and we will be delighted to help you.
What Is Payment In Lieu Of Notice Redundancy?
Ordinarily, when an employee is made redundant, their employment does not end immediately.
Instead, they work their contractual or statutory notice period and get paid throughout.
However, in some cases, an employer may decide that the employee need not work their notice period. Payment in lieu of notice, or PILON redundancy, enables an employer to terminate an employee’s employment with immediate effect and pay them the amount they would have earned during their notice period as a lump sum (not tax free).
When Can Employers Make A PILON Redundancy?
You can make a PILON redundancy if permitted to do so under the terms of the employee’s contract of employment, or through mutual agreement with the employee.
If you and your employee agree to PILON, it’s crucial to keep a clear paper trail evidencing your offer and their acceptance, to avoid future misunderstandings.
When Might You Want To Make A PILON Redundancy?
You might want to make a PILON redundancy for various reasons. For example, you may be concerned that the employee’s continuing presence in the workplace will affect or disrupt your other employees, or you may wish to avoid them having ongoing access to your business’s systems and information.
How Is PILON Calculated?
PILON is the amount the employee would have earned during their notice period. Accordingly, at the simplest level, PILON is calculated with reference to the employee’s salary and the length of their notice period. Usually, PILON clauses in employment contracts will state that any PILON payment will include only the employee’s basic salary and not additional benefits such as commission or bonuses. However, if the contract is silent on the point, the employee is entitled to be put in the position they would have been in had they worked their notice period. In these cases, you would need to consider including payments to cover items such as any bonus or commission the employee would have received.
Speak to us if you are unsure. Our HR specialists will review the employee’s contract of employment and calculate the accurate PILON due.
Is PILON Limited?
No, unlike redundancy pay, which is paid in addition to PILON and can be limited, there are no limits on the amount of PILON an employee may be due. PILON is simply the amount they would have earned had they worked their notice period.
Is PILON Taxable?
Yes, PILON is taxable. It represents the wages the employee would have earned had they worked their notice, so it is subject to income tax and national insurance just as their salary would be.
How Does PILON Differ From Garden Leave?
Garden leave is when an employee who has handed in their notice, been dismissed, or been made redundant is asked not to return to the workplace to work their notice but still receives their wages. Employees are usually placed on garden leave when they are leaving the business to work for a competitor. It is intended to reduce the risk of the employee taking confidential information or speaking with certain other employees.
The primary aim of both strategies is to protect your business’s interests following an employee’s exit. In both garden leave and PILON situations, the employee receives their notice pay without working their notice. The key difference is that when an employee is placed on garden leave, they continue to be employed until the notice period ends, whereas when they are paid in lieu of notice, their employment is terminated.
If you need assistance with PILON, garden leave, or any other employment related issue, our HR specialists are on hand to assist. We consistently receive feedback from clients noting our ‘reassuring and professional advice’, and ‘absolutely brilliant’ service.
Call us now on 01491 598 600 or Click Here to Make An Enquiry and we will be delighted to help you.
