Payments in Notice Period when negotiating a Settlement Agreement

While many people have an employee-employer relationship without problem, thousands of people every year leave the workplace because of disagreements with their employer. When this happens, the employer may seek to put in place a settlement agreement with the employee.

If you’re receiving payment in lieu of notice, and are worried about how it will affect your settlement agreement negotiations, get in contact with us today. At Cavendish Employment Law, we’re a specialist employment law firm with a long track record of winning high-value cases for high-level employees.

Get in touch with us today and we’ll help you secure the best possible outcome to your employment dispute.

Contact our employment law team on 0207 9657203 or contact us online.

What is PILON?

Payment in lieu of notice (PILON), is a payment for your notice period without having to actually work it and often comes about when it would be more advantageous to your employer if you left straight away rather than staying around. For example, if you have a three-month notice period, your employer may prefer you to leave sooner rather than your last official day. This could be due to a number of reasons, such as leaving for a competitor or working on a large-scale project.

The employment relationship ends on your last working day and not when the employer has finished paying you in lieu of notice, meaning you are free to find and start a new job before the end of the notice period.

How much PILON am I entitled to?

Your PILON entitlement varies depending on the length of your employment, but it can be as much as 12 weeks’ worth of pay. In some circumstances, it can be difficult to determine your length of service if there have been breaks in employment. A specialist employment solicitor can assist you in determining your entitlement and ensure you receive what you are entitled to.

PILON Settlement Agreements

Settlement agreements are complex to negotiate because of how the financial sum is calculated and the agreement over the other conditions to be included. One condition that is often negotiated is around pay and the notice period of the employee.

When an employee normally leaves employment, they will work their period of notice and be paid as normal. For example, if an employee accepts a job with a new company, they work the pre-determined notice period as stated in the contract of employment.

However, the notice period is somewhat different when there is a settlement agreement, as the employer often wishes to end the relationship quickly, without them coming onto company premises. This situation is dealt with by a PILON clause in the settlement agreement.

What can PILON affect in my settlement agreement?

  1. Value of the settlement: PILON is typically a significant part of the compensation package, and the agreed-upon value will vary depending on your length of service, seniority and value to the company.
  2. Contractual entitlements: The presence of a PILON may affect an employee's entitlement to contractual benefits during the notice period, such as continued access to company benefits or bonuses. These considerations should be taken into account during the negotiation process.
  3. Restrictive covenants: If your settlement agreement includes a PILON clause, they might also set out rules relating to restrictive covenants, restricting your activities after leaving the company, such as a non-compete clause.

Contact Cavendish Employment Law Today

If you are in the process of negotiating a settlement agreement or have questions about your entitlement, it is important that you seek independent legal advice. Our team at Cavendish law has many years of experience negotiating settlement agreements and advising on employment law matters.

To discuss your circumstances and the best course of action, contact our team by filling in our contact form here, or calling us on 0207 965 7203

Payment in lieu of notice FAQs

When am I not entitled to PILON?

In some cases, you are not entitled to receive any payment in lieu of notice. One instance of this is a breach of contract, such as theft, fraud, or serious misconduct resulting in dismissal. Another instance would be during a redundancy situation, where redundancy payments are subject to their own set of rules.

Is payment in lieu of notice tax-free?

The first £30,000 (including any compensation payments) will be subject to tax exemption, however, anything above this is taxable and subject to income tax and national insurance contributions to the HMRC. How much you pay will be determined by how much your employer calculates to be your basic pay had you worked your notice in full.

What is the difference between PILON and Garden Leave?

PILON is when an employer terminates an employee’s contract and pays the equivalent salary they would have earned during the notice period. In this situation, the employee’s employment is considered to end at the termination date.

Garden leave is when an employer asks the terminated employee to stay away from the workplace / not conduct any work-related activities from home. During this period, the employee receives their notice pay until the final date of employment.

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