What PILON is
When your employment ends, you're normally entitled to work a notice period — or be paid for it. Payment in lieu of notice (PILON) is the lump sum your employer pays instead of you working that notice. Your employment ends immediately; you get the money you'd have earned.
Contractual PILON vs no clause
- With a PILON clause: your contract lets the employer pay instead of notice. It is a contractual payment and treated as earnings.
- Without a clause: terminating without notice is a breach of contract. You may be owed damages equal to your notice pay, but the payment is still usually taxed as earnings ("post-employment notice pay").
Statutory vs contractual notice
You're entitled to whichever is higher:
- Statutory minimum: 1 week's notice once you've been employed a month, then 1 week per complete year of service, up to a maximum of 12 weeks.
- Contractual notice: whatever your contract says — commonly 1 to 3 months, sometimes more for senior roles.
So 5 years' service with a 1-month contractual notice period gives you 5 weeks (statutory wins); the same service with a 3-month contractual period gives you 13 weeks (contract wins).
How PILON is calculated
PILON = unworked notice weeks × your weekly pay. Weekly pay is your annual salary ÷ 52 (or your contractual weekly rate) — and crucially, there is no cap, unlike the £751/week redundancy cap. Example: £52,000 salary, 5 unworked weeks → £1,000/week × 5 = £5,000 gross.
How PILON is taxed — the sting
Since 6 April 2018, all PILON is treated as earnings: fully subject to income tax and employee National Insurance. The £30,000 tax-free termination allowance does not apply — that's reserved for genuine redundancy and ex-gratia payments (see the £30,000 rule).
This surprises people every week: a £5,000 PILON costs a basic-rate taxpayer about £1,000 in income tax (plus NICs), while a £5,000 statutory redundancy payment costs £0. For a £4,000 PILON, a basic-rate taxpayer loses roughly £800 to income tax (20%) and £320 to National Insurance (8%), leaving about £2,880; higher-rate taxpayers keep less. Always split the two when checking a settlement figure — our notice pay calculator shows the tax; the redundancy pay calculator shows the tax-free part.
The redundancy "relevant date" twist
Here's the subtle one Acas flags: when PILON is paid, your redundancy pay must be calculated using the date your employment would have ended if you'd worked your statutory notice — the "relevant date". Those extra weeks can tip you over another full year of service.
Example: 8 years and 11 months' service with 8 weeks' statutory notice paid as PILON. The relevant date moves 8 weeks forward → 9 years and 1 month → 9 years count toward redundancy pay instead of 8. At 1.5 weeks per year (41+), that's an extra £1,126.50 most people never claim unless they know the rule.
What to do next
For the redundancy side, see statutory redundancy pay explained. If you have been given redundancy notice, see redundancy notice periods, and for leaving early see notice pay if you leave early. Run the notice pay calculator for your PILON figure and net estimate, then the redundancy pay calculator with the extended relevant date. If your employer's numbers don't match, ask for a written breakdown — and Acas can advise for free.