What is payment in lieu of notice? (PILON)

Sometimes, it’s in a business’ best interest for an employee to immediately cease their work when either party has given the other notice. In such instances, the employee can be sent on gardening leave or they can be given payment in lieu of notice (PILON).

In this post, we’ll take a look at what PILON is and what you need to know about it.

What is PILON?

PILON is where an employee isn’t required to work their notice at a company and is fully paid their entire salary for the period, upon resigning or being let go.

Two of the most common reasons for giving an employee PILON are:

• When you don’t want them to have continued access to sensitive and/or valuable company information
• When they display disruptive or unproductive behaviour that makes them a liability to keep around.

However, in relation to the second reason, if you terminate an employee’s work contract for gross misconduct, you can dismiss them immediately and not pay them PILON.

It’s prudent to have PILON provisions clearly written into your employment contracts. If you don’t have an official policy and subsequently offer an employee PILON, your company could be found guilty of breach of contract – if said employee seeks legal advice. Now, there’s every chance that the departing employee will be pleased at not having to work their notice and it won’t be an issue – but an official PILON policy will protect your company in all instances.  

What’s the difference between PILON and gardening leave?

When an employee is on gardening leave, they’re still under the contract to your company. This means that they can’t start a new job until their gardening leave is over. With PILON, on the other hand, their contract is terminated immediately and they’re free to start another job elsewhere right away.  

How does PILON affect annual leave and other employee benefits?

As well as PILON, you’ll have to consider all the other benefits the employee receives from your company and how they’ll be compensated for them when they leave.

First and foremost, there’s the issue of their outstanding annual leave allowance. Now, under normal circumstances, an employee could use up their remaining holiday allowance during their notice period. With PILON, however, any remaining days will have to be compensated in their final salary payment.

Calculating this will be straightforward if you have system for accurately tracking and updating your staff’s remaining annual leave allowance, like a centralised absence management software. However, for businesses that struggle to track their employees’ leave, this will prove trickier.

Other benefits may be harder to quantify than remaining holiday dates, such as a company car and medical insurance. You must determine if employees will have access to these benefits during PILON and if not, how they’ll be compensated. Medical coverage, in particular, can prove difficult to work if the employee is undergoing treatment at the time of their departure.

A primary reason for an employee seeking legal counsel when they’re given PILON is them feeling they didn’t receive the compensation they were due upon their departure. This is all the more reason to ensure you have a policy, including details of compensation for company benefits, in employee contracts. This will save you having to decide what to do when such a situation arises and protects the company in the event of a dispute.