Garden Leave — How Pay and Tax Work During Your Notice Period 2026/27
How garden leave differs from payment in lieu of notice, and how salary, benefits and tax are treated while you're on garden leave in 2026/27.
Garden Leave Is Not the Same as Being Paid Off
Garden leave describes a situation where an employer asks a departing employee to stay away from work during their notice period, while remaining formally employed, on full pay and benefits, rather than actually attending work. This is fundamentally different from payment in lieu of notice (PILON), where employment ends immediately and a lump sum is paid instead — on garden leave, your employment contract, tax code and normal payroll arrangements simply continue as though you were still turning up to the office, right up until the notice period genuinely ends.
Why the Tax Treatment Is So Straightforward
| Feature | Garden leave | PILON |
|---|---|---|
| Employment status | Continues until notice period ends | Ends immediately |
| Pay | Normal salary, taxed as usual | Lump sum, fully taxable and NIable since 2018 rules |
| Benefits (pension, company car, etc.) | Generally continue as normal | Typically cease on termination |
| Contractual restrictions (competing employer, confidentiality) | Generally continue to apply | Generally end with employment |
Because garden leave keeps the employment relationship alive, there's no special tax question to work through — you're simply paid your normal salary on your normal payroll schedule, with the same tax code and deductions as before. This is a meaningful practical difference from a leaving package involving PILON or redundancy compensation, which involves working out how different lump-sum elements are taxed.
Why Employers Use Garden Leave
Employers often prefer garden leave over an immediate termination with PILON specifically because it keeps the employee bound by their existing contractual obligations for longer — including confidentiality and any restrictions on working for a competitor — while removing them from day-to-day access to clients, colleagues and sensitive information. For the employee, garden leave means continued pay and benefits without needing to work, but it also generally means being unable to start a new role (particularly with a competitor) until the notice period has fully run its course.
Benefits Continuing as Normal
Because your contract of employment doesn't end during garden leave, contractual benefits generally continue exactly as before — pension contributions keep being made under the normal scheme rules, any company car or private medical insurance typically continues, and holiday may continue to accrue depending on your specific contract. It's worth checking the specific wording of your contract or any garden leave letter, since terms can occasionally vary the default position, but continuation is the general starting point.
Understanding Your Own Garden Leave Position
- Confirm your contract and benefits are continuing as normal during the garden leave period
- Check whether any restrictions (competitor work, confidentiality) remain in force for the full notice period
- Confirm your payslips continue to reflect your usual tax code and deductions
- Check whether any new job offer's start date needs to be delayed until your notice period genuinely ends
Use the notice period and take-home pay calculators below to estimate your pay for the remainder of a garden leave notice period.
Frequently asked questions
How is garden leave taxed compared to normal salary?
Garden leave pay is simply your normal salary, taxed exactly as usual through PAYE, because you remain an employee throughout — your contract continues, your pay continues, and your tax code and deductions carry on unchanged. This is quite different from a lump sum payment in lieu of notice, which has its own specific tax treatment.
Do I still get benefits like a company car or pension contributions during garden leave?
Generally yes — because your employment contract continues during garden leave, contractual benefits such as pension contributions, a company car, or private medical insurance typically continue in the normal way, unless your specific contract says otherwise. This is one of the practical distinctions between garden leave and a clean termination with PILON.
Can I work for another employer while on garden leave?
Usually not, at least not for a competitor or in breach of your existing contractual duties — garden leave keeps you employed and bound by your existing contract, including confidentiality and (often) exclusivity obligations, right up until your notice period actually ends, which is precisely why employers use it to keep departing staff away from clients and colleagues without releasing them into a competing role early.
Does garden leave affect my pension annual allowance calculations?
Not directly — pension contributions during garden leave are treated the same as normal ongoing contributions for annual allowance purposes, since you remain employed and the contributions are being made under your normal contractual arrangement, rather than as part of a lump-sum termination payment.
Try the calculators
Related reading
Garden Leave Explained: Your Rights and Pay in 2026
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