Payment in lieu of notice is a lump sum your employer pays you instead of requiring you to work through your notice period. Employment ends immediately on the date PILON is paid, rather than at the end of the notice period.

How is PILON calculated?

Gross PILON is your normal pay for the unworked portion of your notice period — typically your basic salary, plus any contractual benefits the contract requires to be included. Bonuses and discretionary elements are usually excluded unless your contract or scheme rules say otherwise.

Yes. Since April 2018, all PILON is treated as earnings under HMRC's Post-Employment Notice Pay (PENP) rules and is fully taxable through PAYE plus National Insurance. The £30,000 tax-free allowance for termination payments does not apply to PILON.

Can my employer choose PILON without my agreement?

Only if your contract contains an explicit PILON clause. Without one, paying PILON without agreement is technically a breach of contract — though most employees accept it because it gets them off payroll quickly with full payment.

Does PILON include accrued holiday?

PILON itself does not. Untaken accrued holiday must be paid out separately. It's also taxable as earnings, but it sits on a different line from PILON.

UK PILON Calculator

Your gross pay (before tax)

Pay period

Unworked notice

Notice unit

Gross PILON

£9,000

13.00 weeks of unworked notice at £692 per week.

Tax: Since April 2018, PILON is treated as earnings and is fully taxable through PAYE plus National Insurance. The £30,000 tax-free allowance does not apply to PILON.

This calculates the gross PILON only. Whether your employer is contractually allowed to pay PILON depends on a clause in your contract; otherwise it has to be agreed. Not legal or financial advice.

How PILON works

PILON (payment in lieu of notice) is a lump sum your employer pays you instead of working out your notice. Your employment ends on the day PILON is paid, not at the end of the contractual notice period. That has real consequences for things like restrictive covenants, which start counting from your employment end date.

The basic formula

Gross PILON equals your normal pay for the unworked notice. For someone on a 3-month notice period who is paid PILON for all 3 months at £3,000 per month gross, that’s £9,000 gross. Monthly figures convert to weekly at 52 weeks divided by 12 months, which is about 4.33 weeks per month.

Worked example

Sarah is on £3,500 gross per month with a 3-month notice period. Her employer wants her off payroll immediately and pays full PILON. Gross PILON = £3,500 × 3 = £10,500. After PAYE and NI, the net figure is significantly lower because the £30,000 termination tax-free allowance does not apply to PILON. The lump sum is taxed in the month it lands, which often pushes Sarah into a higher tax band for that month only.

What counts as “normal pay”

Basic salary always counts. Contractual bonuses usually count. Discretionary bonuses usually don’t. Benefits in kind (car, medical, pension contributions) sometimes count if the contract requires their inclusion. The default rule is your basic salary plus anything the contract specifically says is part of the PILON calculation.

Tax: the 2018 reforms

Before April 2018, contractual PILON was taxable but non-contractual PILON could sometimes fall within the £30,000 termination payment exemption. HMRC closed that gap. All PILON, contractual or not, is now classed as Post- Employment Notice Pay (PENP) and taxed as earnings. The tax-free £30,000 only applies to genuine ex-gratia termination payments and statutory redundancy.

PILON vs working notice vs garden leave

See the full PILON guide for a side-by-side comparison. The short version: PILON pays you off in cash and ends employment immediately; working notice keeps you in role until the notice period ends; garden leave keeps you employed but at home with full pay through the notice period. The post-termination clock for non-competes starts at different points in each case, which can be the most important factor if you’re moving to a competitor.

Related calculators and guides

Notice period calculator — work out your final working day if you’re going to work notice rather than take PILON.
Garden leave calculator — date arithmetic for garden leave including non-compete overlap.
Redundancy pay calculator — statutory redundancy if your departure is a redundancy.
Holiday entitlement calculator — accrued holiday should be paid alongside PILON.
PILON: full explainer
The complete UK resignation guide

For the official HMRC PENP rules, see gov.uk on tax on PILON.

Frequently asked questions

What is PILON?: Payment in lieu of notice is a lump sum your employer pays you instead of requiring you to work through your notice period. Employment ends immediately on the date PILON is paid, rather than at the end of the notice period.
How is PILON calculated?: Gross PILON is your normal pay for the unworked portion of your notice period — typically your basic salary, plus any contractual benefits the contract requires to be included. Bonuses and discretionary elements are usually excluded unless your contract or scheme rules say otherwise.
Is PILON taxable?: Yes. Since April 2018, all PILON is treated as earnings under HMRC's Post-Employment Notice Pay (PENP) rules and is fully taxable through PAYE plus National Insurance. The £30,000 tax-free allowance for termination payments does not apply to PILON.
Can my employer choose PILON without my agreement?: Only if your contract contains an explicit PILON clause. Without one, paying PILON without agreement is technically a breach of contract — though most employees accept it because it gets them off payroll quickly with full payment.
Does PILON include accrued holiday?: PILON itself does not. Untaken accrued holiday must be paid out separately. It's also taxable as earnings, but it sits on a different line from PILON.

General information, not legal or tax advice. For your specific situation, contact ACAS or an employment-law solicitor.

PILON calculator