Notice Pay on Dismissal

Employees being dismissed are entitled to notice unless dismissed for gross misconduct.

Types of Notice

Statutory Minimum Notice

By law, employers must give:

Length of Service	Minimum Notice
1 month to 2 years	1 week
2-3 years	2 weeks
3-4 years	3 weeks
And so on...	+1 week per year
12+ years	12 weeks (maximum)

Contractual Notice

Contracts often specify longer notice periods:

• Standard employees: 1-3 months
• Senior/management: 3-6 months
• Directors: 6-12 months

The employee is entitled to whichever is longer - statutory or contractual.

During Probation

Contracts may specify shorter notice during probation:

• Often 1 week during probation
• Statutory minimum still applies after 1 month

Summary Dismissal (No Notice)

When Permitted

Only for gross misconduct - a fundamental breach of contract.

Examples:

• Theft or fraud
• Violence or threats
• Serious insubordination
• Gross negligence
• Bringing company into serious disrepute

Still Need Process

Even summary dismissal requires:

• Proper investigation
• Disciplinary hearing
• Opportunity to respond
• Genuine belief in gross misconduct

Payment in Lieu of Notice (PILON)

What Is PILON?

Payment instead of working notice period. Employment ends immediately.

Contractual PILON

If contract includes PILON clause:

"The Company may terminate employment immediately by making a payment in lieu of notice equal to basic salary for the notice period."

• Employer has right to use PILON
• Employee cannot insist on working notice
• Payment is fully taxable

PILON Without Clause

If no contractual right:

• Technically a breach of contract
• But employee receives payment, so usually no complaint
• May be treated as damages - potentially tax-free up to £30,000
• Employee theoretically entitled to benefits during notice too

What PILON Includes

With Clause	Without Clause
Usually basic salary only	May include benefits value
As specified in contract	All lost earnings
Fully taxable	May be partially tax-free

Garden Leave

What Is It?

Employee serves notice but doesn't work:

• Remains employed throughout notice
• Receives full pay and benefits
• Cannot start new job during this period
• Often excluded from workplace

Advantages

For employer:

• Employee bound by duties of employment
• Confidential information stays current
• Contacts "cool off"
• Non-competes start when employment ends

Requires Contractual Provision

"During your notice period, the Company may require you to remain away from work and not perform duties, while remaining employed on full pay and benefits."

Without a clause, employer may need to provide work.

Benefits During Notice

Working Notice

Employee receives normal salary and benefits throughout notice period.

PILON

Depends on contract terms:

• Some contracts: PILON covers salary only
• Some contracts: PILON includes benefits value
• Without clause: Employee may claim value of lost benefits

Common Benefits to Consider

• Pension contributions
• Private medical insurance
• Company car/car allowance
• Life insurance
• Bonus (if accruing during notice)
• Share options (vesting during notice)

Holiday During Notice

Accrued Holiday

Employee is entitled to:

• Untaken holiday accrued before notice, PLUS
• Holiday accruing during notice period

Taking Holiday During Notice

Employer can require employee to take holiday during notice by giving appropriate notice.

Payment for Untaken Holiday

If employee doesn't take all holiday:

• Payment in lieu at termination
• Calculate using normal holiday pay rules

Tax Treatment

Notice Worked

Normal taxation - salary taxed as earnings.

Contractual PILON

Fully taxable as earnings.

Non-Contractual PILON

May be treated as damages:

• First £30,000 potentially tax-free
• Employer often taxes anyway (safer approach)
• Employee can reclaim if overpaid

Auto-PILON Rules

Since 2018, if employee is not required to work all their notice, the "post-employment notice pay" (PENP) is calculated and taxed even if no PILON clause exists.

Wrongful Dismissal

What Is It?

Dismissal without proper notice (and without gross misconduct).

Remedies

• Claim for damages equal to notice period value
• Includes salary, benefits, pension
• County court or tribunal (limited jurisdiction)

Time Limits

• Tribunal: 3 months less 1 day
• County court: 6 years

Practical Considerations

Immediate Concerns

When dismissing, decide:

• Work notice, garden leave, or PILON?
• What about benefits during notice?
• How to handle handover?
• Return of company property?

Employee Perspective

When being dismissed:

• Check contract for notice entitlement
• Understand what's included in PILON
• Consider tax implications
• Know your rights if notice not given