Usually in the next payroll run following the effective date of termination, alongside accrued holiday and any final salary. Payslip issued within 5 working days of the payroll date; P45 within 30 days of leaving. Delays beyond the next payroll date may trigger an unlawful-deductions claim.

Is PILON paid gross or net?

Net - the employer deducts income tax and employee NI through PAYE and pays the net amount to the employee. Employer NI is separately payable. The payslip shows the gross figure with each deduction as a separate line.

Can PILON be paid in instalments?

Uncommon but possible where the employment contract or settlement agreement specifies. Some employers use salary continuation (monthly payments through the notice period without work) instead of lump sum PILON. Any instalment structure must be documented and taxed as it is paid.

Does PILON appear on my P45?

Yes. The P45 shows total gross pay for the tax year including PILON, plus total tax deducted. Give the P45 to your new employer so they can apply the correct cumulative PAYE code. HMRC uses the P45 to update your tax record.

What if my employer refuses to pay PILON?

Query in writing to HR first, then follow the grievance procedure. Notify ACAS Early Conciliation within 3 months less one day of the effective date of termination. Employment tribunal claim if not resolved (unlawful deductions or breach of contract). Breach of contract can also be pursued in the civil courts (longer limitation, no cap).

How is PILON Paid? (UK)

The standard delivery - single lump sum

Most employers pay PILON as a single lump sum in the final pay run following the effective date of termination. Timing:

Effective date of termination confirmed in writing.
Final pay run scheduled for the next normal payroll date (or a special one-off run for high-value senior packages).
PILON, accrued holiday, accrued bonus and any ex gratia payment paid together.
Payslip provided showing each element as a separate line.
P45 issued after the final pay run.

The lump sum is convenient for the employer but creates cash-flow bunching for the employee - the whole notice period's pay lands in one tax month, potentially pushing into a higher tax band for that month even where the annual position is unchanged.

Salary continuation

Salary continuation pays the PILON amount as normal monthly salary through the notice period without requiring the employee to work. It is administratively similar to garden leave but without the ongoing contractual employment status. Practical mechanics:

Employer pays the normal monthly salary for the notice period.
Employment ended on the notified date.
Payslips continue to be issued monthly.
P45 issued at the end of the notice period.
Auto-enrolment pension contributions typically continue in the normal way.

Salary continuation is uncommon at junior level and unusual overall - most employers prefer to pay lump-sum PILON and issue the P45 immediately. Salary continuation is more common in NHS, universities and public-sector where payroll systems are less flexible for one-off termination runs.

Payslip presentation

The final payslip must show PILON as a separate line, labelled as PILON or "payment in lieu of notice". Combining PILON with basic pay or holiday pay obscures the tax treatment and can cause errors. A well-presented final payslip includes:

Line	Purpose
Basic pay (partial month if applicable)	Pay earned for time worked in the final pay period
PILON (or Payment in lieu of notice)	Unworked notice
Accrued holiday pay	Statutory and contractual holiday accrued but untaken
Bonus (if payable)	Contractual bonus accrued to leaving date
Ex gratia payment (if any)	Termination payment - up to £30,000 tax-free under s.401 subject to PENP
Total gross	Sum of above
Income tax	Deducted through PAYE
Employee NI	Deducted (2% above the Upper Earnings Limit)
Pension deduction (if applicable)	Employee auto-enrolment contribution
Total net	Amount paid to employee

Tax and National Insurance on PILON

Since April 2018, all PILON is fully taxable as earnings under the PENP rules (section 402D Income Tax (Earnings and Pensions) Act 2003). Deductions:

Income tax at the marginal rate (0% up to Personal Allowance, 20% basic, 40% higher, 45% additional).
Employee NI at 12% (0% below the Primary Threshold) up to the Upper Earnings Limit, then 2% above.
Employer NI at 15% (2024-25) is separately payable by the employer.

Cash-flow tip: PILON lands as a large one-off in the final tax month, which can push the employee into a higher tax band for that month. Overall annual tax should be correct once the tax code is applied through the P800 reconciliation. HMRC guidance is at PILON tax.

Delivery method - bank transfer vs cheque

Almost all UK employers pay PILON via BACS or Faster Payments to the employee's normal salary account. Cheques are rare in 2026 but still used by some legacy payrolls (particularly in professional partnership contexts). Bank details on the P45 request form should match the normal salary account unless the employee specifies otherwise in the exit paperwork.

For settlement agreements with ex gratia lump sums, some employers pay in tranches to spread cash-flow (e.g. 50% on the leaving date, 50% on the second anniversary of leaving). Any such structure must be documented in the settlement agreement.

Timing of payment

Standard timing:

Effective date of termination - confirmed in the notification letter.
Next payroll date - final pay run including PILON.
Within 5 working days of the payroll date - payslip issued.
Within 30 days of leaving - P45 issued.

Delays beyond the next payroll date are unusual and may trigger an unlawful-deductions claim. If PILON is not paid by the expected date, first raise it with HR in writing, then escalate to ACAS Early Conciliation, then to the employment tribunal if unresolved. See employment tribunal UK.

How to check your PILON

Confirm the effective date of termination. Get it in writing from HR before you leave.
Confirm the contractual notice length. Read the contract clause verbatim.
Confirm the PILON base. Basic pay only, or including bonuses/benefits per the contract.
Calculate the expected gross PILON. Use the PILON calculator.
Check accrued holiday. Use the holiday entitlement calculator.
Check any accrued contractual bonus. Read the scheme rules.
Compare with the final payslip. Query any difference in writing.
Verify the P45 figures. Total gross pay for the tax year should match your records.

What to do if PILON is wrong

Underpayment or non-payment of PILON is one of the most common tribunal claims. Steps to remedy:

Query in writing to HR with the calculation and evidence within 14 days of the payslip.
Follow the internal grievance procedure if not resolved within 28 days.
Notify ACAS Early Conciliation within 3 months less one day of the effective date of termination.
Employment tribunal claim (unlawful deductions or breach of contract) if not resolved through ACAS.

Breach of contract claims for PILON can also be brought in the civil courts (6 year limitation, no cap) or the tribunal (3 month limitation, cap £25,000). Take advice on the best route depending on the value.

Interaction with new employment

If you start a new job during the period covered by PILON, the two employments overlap for tax purposes. Practical points:

PAYE cumulative tax code is applied to the higher-paid employment.
The new employer applies a Week 1 / Month 1 tax code until HMRC updates the code.
Total NI can be capped in some circumstances (Class 1 annual maximum).
You must give the new employer your P45 from the previous employment; PILON pay is included in the P45 gross figure.

There is no legal prohibition on starting a new job during PILON coverage unless a restrictive covenant applies. See working for a competitor during notice period.

Useful calculators

Related guides

Authority pages

Frequently asked questions

When is PILON paid?: Usually in the next payroll run following the effective date of termination, alongside accrued holiday and any final salary. Payslip issued within 5 working days of the payroll date; P45 within 30 days of leaving. Delays beyond the next payroll date may trigger an unlawful-deductions claim.
Is PILON paid gross or net?: Net - the employer deducts income tax and employee NI through PAYE and pays the net amount to the employee. Employer NI is separately payable. The payslip shows the gross figure with each deduction as a separate line.
Can PILON be paid in instalments?: Uncommon but possible where the employment contract or settlement agreement specifies. Some employers use salary continuation (monthly payments through the notice period without work) instead of lump sum PILON. Any instalment structure must be documented and taxed as it is paid.
Does PILON appear on my P45?: Yes. The P45 shows total gross pay for the tax year including PILON, plus total tax deducted. Give the P45 to your new employer so they can apply the correct cumulative PAYE code. HMRC uses the P45 to update your tax record.
What if my employer refuses to pay PILON?: Query in writing to HR first, then follow the grievance procedure. Notify ACAS Early Conciliation within 3 months less one day of the effective date of termination. Employment tribunal claim if not resolved (unlawful deductions or breach of contract). Breach of contract can also be pursued in the civil courts (longer limitation, no cap).

Sources and further reading

HMRC EIM13874 - PILON and termination payments — HMRC guidance on PILON tax treatment.
GOV.UK: Payment when leaving a job — Government guidance on final pay including PILON.
GOV.UK: P45, P60 and P11D forms — PAYE forms including P45 detail.
ACAS: Final pay — Free, impartial guidance on final pay.
Employment Rights Act 1996, section 13 — Unlawful deductions from wages.

General information about UK PILON and termination pay, not personal tax or legal advice. For your situation take advice from HMRC, ACAS or an employment-law solicitor.