Pay in lieu of notice (PILON) explained: how much and how it is taxed

The short answer: pay in lieu of notice, often called PILON, is the money your employer pays you instead of letting you work your notice. Your job ends straight away, and you get the wages you’d have earned during your notice as a lump sum. It’s taxed like normal pay, with National Insurance, and it doesn’t count towards the £30,000 tax-free limit for redundancy pay.

How much notice you’re owed

The law sets a minimum, based on how long you’ve worked for your employer. Your contract can give you more, and if it does, the longer period applies:

Statutory notice starts at one week once you’ve worked there for a month, and goes up by a week for each full year, to a maximum of 12 weeks after 12 years. Plenty of contracts give a month or three months instead, especially for salaried and senior jobs. Check your contract or offer letter.

How PILON is worked out

PILON should match what you’d have earned if you’d worked your notice. For most people that’s simply basic pay for the notice period. Take someone on £36,000 with 8 weeks’ notice: £36,000 ÷ 52 × 8 = £5,538.

Your contract decides whether more is included. Some PILON clauses cover basic pay only. Others also include things like car allowance, regular overtime, commission or the pension contributions you’d have received. If your contract doesn’t have a PILON clause, you’re normally entitled to compensation for everything you’d have received during your notice, which can be worth more. It’s worth asking which applies to you.

How it’s taxed

Since 6 April 2018, all pay in lieu of notice is taxed as earnings. It doesn’t matter what your contract says or what your employer calls the payment. If your notice isn’t worked, your employer has to work out the basic pay for the unworked notice and tax it in full, with National Insurance, before anything else in your package can use the £30,000 redundancy limit.

That’s why it pays to know which part of your package is which. £5,000 of notice pay is worth a lot less to you than £5,000 of redundancy pay:

On £36,000, the £5,538 of PILON in the example above leaves you about £3,988 after tax and National Insurance, assuming you earned £21,600 in the tax year before leaving. If it’s paid after your P45, it’ll be taxed on code 0T and you may pay too much at first. Our guide to tax on redundancy pay explains how to get it back.

PILON, garden leave or working your notice

PILON is often the best of the three if you’ve already got another job lined up, because you can start straight away and still get the money. Garden leave keeps you employed, so you keep building up holiday and pension, but you can’t start somewhere new until it ends.

What PILON means for your leaving date

With PILON, your employment ends on the day you’re told, not at the end of the notice period. That can matter:

• Redundancy pay: your years of service are counted to the end of your statutory notice, even if you’re paid in lieu. If that tips you over a work anniversary, you may be owed an extra year, or reach the two years you need to qualify at all.
• Holiday: you stop building up holiday on your leaving date, so you’re paid for what you’ve earned up to then.
• Benefits: PILON counts as earnings for Universal Credit if it’s paid after you’ve claimed. Claiming before it arrives can reduce your first payment.
• Tribunal deadlines: most time limits run from your actual leaving date, so the clock starts sooner.

If your notice pay is missing or wrong

First, check your contract for the notice period and what PILON includes. Then raise it with your employer in writing, setting out what you think you’re owed and how you worked it out. If that doesn’t settle it, you can bring a claim for breach of contract at an employment tribunal, usually within three months less one day of your job ending. You must contact Acas for early conciliation before you can claim.

If your employer has gone bust, you can claim statutory notice pay from the government’s Redundancy Payments Service, along with statutory redundancy pay and some unpaid holiday and wages.

Work out your full package

Notice pay is one part of what you’re owed. Use the redundancy pay calculator for the statutory payment, the holiday entitlement calculator for unused leave, and our guide to redundancy pay for the rules.

Figures use 2026/27 Income Tax and National Insurance for England, Wales and Northern Ireland. This is general information, not legal advice. Acas offers free, confidential help.