Whether it's on good or not-so-great terms, payment in lieu of notice [PILON] can help to manage a person's exit if they're dismissed there and then.
This is especially helpful to those people who:
- you no longer wish to have ongoing access to sensitive company information; and /or
- display ongoing disruptive and unproductive behaviour.
What is payment in lieu of notice period [PILON]?
PILON is where you compensate an employee's immediate dismissal by paying their notice period instead. Payment in lieu of notice therefore protects your worker's rights for the money they would have earned during their notice period.
It's different from gardening leave whereby an employee remains employed by you and is paid during their notice period. Under gardening leave, they're still in the contract, so even though you ask them not to work, they cannot take up new employment during that time.
PILON is necessary for instances where you require an immediate end to the employment and can cut ties to override the previous contract.
If you’re dismissing an employee for gross misconduct, then PILON is not normally paid.
How can employers manage PILON smoothly?
Check your employment contract. Look at what your current PILON terms detail and consider updating conditions.
It’s an awful lot easier to pay PILON without breaching a contract of employment if the terms are carved into the contract in advance.
Include a PILON provision that covers how, when and what is paid in lieu.
Employers are well within their rights to include a condition to terminate employment immediately if PILON is paid at the basic salary that would have otherwise accrued.
Consider extra pay and benefits.
This is particularly useful for those who don't yet have PILON terms and conditions written into their employment contract. Technically, if it's not there, any termination of employment with PILON is likely to be a breach of contract.
So reassure your people and clear up ambiguity here and now. By specifying the employment extras and benefits that are inclusive of PILON, you can - in theory - manage your employee's exit pretty smoothly.
Walk a mile in their shoes and use PILON to fireproof any bridges.
Try to see this as an opportunity to demonstrate your level of care as an employer right up until unforeseen dissmals.
This is key for showing the rest of your people how you handle difficult situations and endings.
Remember, the stage for whistle blowing and exposing poor company culture is vast and far reaching in today's digital communities. Help them leave on a good note.
Curious about culture? Pledge to put your people first and watch your business grow from the inside. Check out the Culture Pledge.
Extras to consider on top of salary and benefits for the notice period:
- Payment for annual leave that would've accrued during the notice period
- Further payment to compensate the employee as a way of full and final settlement.
- Continued access to employee apps and wellbeing programmes, such as medical, EAP, and any other benefits that could help the transition.
Complications can arise if your employee:
- has share options,
- could lose additional pay or benefits during the notice period that you don’t want to cover under the PILON,
- is having medical treatment under company health insurance; and / or
- can evidence that the conditions for the correct dismissal process were neglected.
In those cases, think about contacting an employment lawyer to check for breaches in your contractual obligations.
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If you have it written into the terms of employment, then it should be paid in that way and according to those conditions. It might stipulate that only basic pay will be paid, whilst other benefits will not.
Calculate the pay the employee would have earned during that period [Breathe HR can help with this].
Where you don’t have any provision for PILON you should pay all pay and benefits that would have accrued over the notice period. PILON should normally be made immediately on termination of employment.
Is tax applicable to PILON?
PILON payments may or may not be taxable depending on how they are handled and paid. There are three ways to make PILON payments:
- PILON payment made under terms of employment where employee is entitled to it
- PILON payment made under terms of employment at the employer’s discretion
- PILON payment made where there is no contractual right of payment or provision made
According to HMRC, tax will normally be paid on the first two situations because those payments come under normal terms of the employment contract.
Because the third situation normally results in a breach of contract it is therefore not payable under the terms of employment and not subject to normal tax – it is essentially an advance payment of damages to compensate an employee for loss and to avoid a costly legal claim for you.
This payment is tax free up to £30,000.
Some workers who are dismissed from their jobs receive payments in lieu of notice. These are payments that are made by an employer that is higher than the typical wages an employee receives when terminating an employee instead of going through a formal termination process. These wages are a substitute for any wages the employer would otherwise pay an employee after he or she is terminated. Employers are not required to offer wages in lieu of notice. Typically, these are only available when they are included in an employment contract or collective bargaining agreement. If you have questions about wages in lieu of notice, the employment lawyers at Swartz Swidler can help.
Understanding payments in lieu of notice
When an employee is paid money that he or she would have earned through working during the contracted period because he or she is being terminated without notice, it is called wages in lieu of notice. A contractual period for notice may be included as a term in an implied or express contract. Express contracts can be oral or written.
In some cases, contracts may call for written notice or wages in lieu of notice. During the contractual period, the employee remains under contract and will not be allowed to take a different job. Employers use wages in lieu of notice when they want to end an employee’s services immediately instead of giving the worker the notice required by the contract. These payments are not given when employers fire employees for engaging in gross misconduct.
What is the significance of payments in lieu of notice?
Employers who give workers wages in lieu of notice can stop having them report for work but continue to keep the workers on their payroll while issuing them paychecks. This type of arrangement is considered to be payments in lieu of notice. The worker is technically unemployed since he or she is not being paid to perform work. However, a state can still deem the payments to be income.
Benefits
Workers who receive remuneration in lieu of notice might still receive other benefits from their employers even though they have been terminated. Some examples might include receiving health benefits or vacation pay during the time that they are receiving wages in lieu of notice.
Unemployment compensation
In New Jersey, wages in lieu of notice are considered to be wages. Workers who are receiving these types of payments are not eligible for unemployment compensation while they receive them. However, workers may be eligible for unemployment compensation if their payments in lieu of notice are for less than a week’s pay.
Remuneration in lieu of notice and the WARN Act
The WARN Act covers certain employers who conduct planned mass layoffs or plant closures and requires them to give advanced written notice to affected employees. Employers can opt to pay wages in lieu of notice to meet the federal law’s requirements. Under this law, employers must provide 60 days of written notice before conducting a mass layoff. If the employer decides to complete the mass layoffs sooner, the employer can make payments in lieu of notice to meet the law’s requirements.
Payments in lieu of notice and employment contracts
Some employment contracts include payment in lieu of notice provisions to provide the basis for immediately terminating a contracted employee. Employers use these types of provisions to avoid violating the contract. To be valid, the provision must state the terms regarding the payment in lieu of notice, including the amount that should be paid. Typically, a payment in lieu of notice provision will state that the contracted employment can be immediately terminated if the employer pays the worker a payment in lieu of notice for his or her base salary through the end of the notice period. Disputes can still arise when an employer pays wages in lieu of notice when a provision is not included in the employment contract. Disputes are especially likely to arise when there are share options in dispute or when the worker stands to lose additional benefits or pay because of a loss of coverage by the employer. Employment lawyers may help employees to negotiate with their employers to resolve these and other disputes that arise in situations involving wages in lieu of notice.
How are payments in lieu of notice calculated?
Employers who intend to offer payments in lieu of notice should make them as soon as they terminate the employment of the affected worker. They can calculate the payment according to the terms outlined in the employee’s contract. They can also issue them at their discretion. When the payments in lieu of notice are not included in the employment contract, they may constitute a breach of contract.
Get help from the experienced employment lawyers at Swartz Swidler
Workers who are offered payments in lieu of notice might want to seek help from the experienced lawyers at Swartz Swidler. If the worker has an employment contract, the attorneys can review it and advise the worker about the legality of the payment in lieu of notice. The attorneys might also negotiate with the worker’s employer to secure additional pay or benefits for the worker. In situations in which the employee’s termination was wrongful or in breach of the contract, the attorneys might litigate the matter through the court process to protect their client’s rights. Contact Swartz Swidler today to schedule a consultation by submitting your information to us on our online contact form or calling us at 856.685.7420.