What is PILON?
PILON (payment in lieu of notice) is a payment made to an employee when employment is terminated without requiring the employee to work their notice. Instead the employee is paid a “lump sum” representing the salary they would have received during the notice period.
Why do employers make PILON payments?
By making a PILON payment employers are able to get the employee out of the business, away from clients and confidential information quickly while ensuring that the contract is terminated lawfully and also ensuring that any restrictive covenants remain enforceable.
Can every employer make a PILON payment?
It depends on what provisions are made in the contract of employment. In some circumstances a contract may specify that termination can be made immediately by making a pay in lieu of basic salary for the notice period. Therefore benefits such as holiday pay and pension that would have accrued during the notice period may not need to be paid. However, employers are usually required to pay benefits, when the contractual provision for PILON does not specify what the pay should be for.
If there is a PILON clause in the contract of employment, the amount the employee receives will normally be set out.
Therefore, in order to avoid disputes, the PILON clause should define how the PILON is going to be calculated, whether benefits other than salary are to be included, and whether the payment will be gross or net of tax.
What happens if the contract of employment does not contain a PILON clause?
If the contract of employment does not contain a PILON clause then the payment made by an employer would represent damages for breach of contract as there is no term in the contract allowing the employer to terminate an employee’s contract by paying PILON. If an employer decides to proceed on this basis then it is vital that the employer’s payment to the employee includes other benefits which would have accrued during the notice period such as holiday pay and pension rights, otherwise an employee may have an outstanding claim for wrongful dismissal.
However, if an employee is dismissed on grounds of gross misconduct, are they still entitled to PILON?
PILON is not normally paid if an employee is dismissed on grounds of gross misconduct.
