Pay in lieu of notice (PILON) — your rights and how to check the amount

Pay in Lieu of Notice sounds simple, but employers frequently underpay it — leaving out benefits, getting the calculation period wrong, or failing to account for bonuses. Since 2018 it is always taxable, but the amount itself must still be correct.

Received a PILON? Check you've been paid correctly

Check your PILON payment

PILON stands for Pay in Lieu of Notice. It is a lump sum payment your employer makes when they want to end your employment immediately, rather than having you work out your notice period. You receive your notice pay as a single payment and your employment ends on the same day.

Yes, since April 2018, all PILON payments are fully subject to income tax and National Insurance, whether or not there is a PILON clause in your contract. This changed under the Finance (No. 2) Act 2017 — before that, contractual PILON was taxable but non-contractual PILON could sometimes be paid tax-free up to £30,000.

Does my contract need a PILON clause for my employer to pay it?

No. Your employer can offer PILON even without a contractual clause, but without one they are technically in breach of contract. This used to matter for tax purposes, but since 2018 all PILON is taxed the same way regardless.

What should PILON include?

PILON should reflect your basic salary for the notice period. It should also include the value of benefits you would have received — company car, health insurance, pension contributions — unless these are excluded by a clear contractual term.

Can PILON affect my restrictive covenants?

It can. Post-termination restrictions (non-competes, non-solicitation) typically run from the end of the notice period. If PILON is paid and employment ends immediately, restrictions may run from that earlier date — but only if the contract is clear on this. Ambiguity is resolved in your favour.

PILON — Pay in Lieu of Notice

Pay in lieu of notice (PILON) — your rights and how to check the amount

Last updated: April 2026

All PILON is subject to income tax and NI since April 2018

PILON should cover more than just basic salary

Employment terminates the day PILON is accepted

What PILON must include

PILON is not simply your basic salary for the notice period. It should represent everything you would have earned had you worked out your notice. This includes:

How PILON is taxed — what changed in 2018

Before April 2018, the tax treatment of PILON depended on whether your contract contained an express PILON clause:

From 6 April 2018, the Finance (No. 2) Act 2017 changed this entirely. All PILON — whether contractual or not — is now subject to income tax and National Insurance as employment income. The £30,000 exemption no longer applies to PILON; it only applies to genuine compensation for loss of employment (e.g. ex-gratia payments above the notice entitlement).

What still gets the £30,000 exemption?

Payments for loss of office that go beyond notice pay — such as an ex-gratia payment in a settlement agreement — can still use the £30,000 threshold. PILON itself does not. Statutory redundancy pay also remains exempt up to the relevant limit.

PILON vs garden leave — choosing between them

Whether you receive PILON or garden leave is usually your employer's choice (governed by your contract), but it has practical implications for you:

Prefer garden leave if…

PILON questions answered

Not sure if your PILON was calculated correctly?

Start My Claim's pay calculator works out exactly what you should have received — free to use, no sign-up needed.

Your claim, estimated

What could you actually be owed?

No sign-up, no card, no email. Your numbers just appear below as you type — then you decide whether to build the full case.

Employment Rights Act 1996

GOV.UK Employment Tribunals