Glossary · UK
What is Payment in Lieu of Notice (PILON)?
A payment an employer makes instead of requiring you to work your notice period, ending employment immediately while compensating for that notice.
Full Definition
Payment in Lieu of Notice (PILON) is a sum an employer pays so an employee can leave straight away rather than working out their contractual or statutory notice period. It is common where an employer wants the worker to depart immediately, for example on redundancy or dismissal. For tax purposes, PILON is treated as earnings, not as a tax-free termination payment: it is subject to Income Tax and Class 1 National Insurance in the normal way. HMRC's Post-Employment Notice Pay (PENP) rules ensure the basic pay element of any notice period is taxed even if the contract has no explicit PILON clause, preventing notice pay being disguised as a tax-free settlement. In 2026/27 employee NI is 8% on earnings between GBP 12,570 and GBP 50,270 and 2% above. Distinguishing taxable PILON from any genuinely exempt termination payment matters because it changes the net amount you actually receive.