What is PILON and is it taxable?

PILON (Payment in Lieu of Notice) is a lump sum paid when your employer ends your employment immediately instead of requiring you to work your notice. Since April 2018, all PILON is subject to income tax and National Insurance regardless of whether a PILON clause exists in your contract.

What is the statutory notice period in the UK?

The statutory minimum notice period is one week per complete year of service, up to a maximum of 12 weeks. You must have worked for at least one month to be entitled to notice. Your contract may specify a longer period — you are entitled to whichever is greater.

What is garden leave?

Garden leave means your employer keeps you employed on full pay during your notice period but asks you not to come to work. You remain an employee — accruing holiday, pension and benefits — but are not required to attend. This differs from PILON where employment ends immediately.

Finance & Employment

Notice Period Pay Calculator UK – PILON, Garden Leave & Holiday Pay

Calculate your notice period pay, PILON (Payment in Lieu of Notice) and garden leave entitlement under UK employment law. Includes statutory vs contractual notice comparison, tax on PILON, and outstanding holiday pay owed at termination.

Updated April 2026 · Employment Rights Act 1996

✅ Rates verified April 2026 · Sourced from HMRC, DWP & UK legislation · About our verification process

Statutory vs Contractual Notice

You are always entitled to whichever is greater — your statutory minimum or your contractual notice period. Statutory notice is set by the Employment Rights Act 1996: one week per complete year of service, capped at 12 weeks, after at least one month of continuous employment. Your employment contract may specify a longer period — three months is common for professional roles. If it does, you are entitled to that longer period.

Payment in Lieu of Notice (PILON)

If your employer ends your employment immediately without requiring you to work your notice period, they must pay you PILON — the equivalent of what you would have earned during the notice period. Since April 2018, all PILON payments are subject to income tax and National Insurance, regardless of whether a PILON clause exists in your contract. Your employer must calculate Post-Employment Notice Pay (PENP) and deduct tax and NI before paying you.

PENP calculation: Since April 2018, HMRC requires employers to calculate Post-Employment Notice Pay (PENP) on all termination payments. The PENP portion of any settlement is fully taxable. Only amounts exceeding the PENP that relate to other termination payments (e.g. redundancy) may qualify for the £30,000 tax-free allowance.

Garden Leave

Garden leave means your employer keeps you employed and on full pay during your notice period but asks you not to come to work, access systems, or work for competitors. You remain an employee throughout — accruing holiday entitlement, pension contributions, and all contractual benefits. Garden leave is often used to protect business interests, particularly for senior or sales roles with access to sensitive information or client relationships.

The key difference from PILON: during garden leave you are still employed and bound by your contract (including restrictive covenants). With PILON your employment ends immediately. This distinction matters for non-compete clauses — which typically run from the end of employment, not the end of the notice period.

Outstanding Holiday Pay at Termination

When your employment ends, you are entitled to be paid for any accrued but untaken holiday. This is calculated as your daily rate multiplied by the number of outstanding days. If you have taken more holiday than you have accrued at the point of leaving (for example if you took January's holiday in advance and then resigned in February), your employer may be entitled to deduct the excess from your final pay — but only if this is explicitly permitted in your contract.

Holiday accrual during notice: You continue to accrue holiday during both garden leave and worked notice. If your employer prevents you from taking accrued holiday during garden leave, they must pay you for it on termination. This is separate from and in addition to any PILON payment.