Make a payment in lieu of notice

Key points

  • An employer should make a payment in lieu of notice ("PILON") when it wishes to terminate the contract of an employee without giving the notice due under the contract (unless the dismissal is in response to gross misconduct).
  • Making a payment in lieu of notice is particularly common in redundancy cases where there has already been consultation prior to the dismissal.
  • Employers should be aware of the potential effect of paying in lieu of notice on the enforceability of restrictive covenants.
  • The tax treatment of a payment in lieu of notice will depend on the terms of the contract.

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