PAYMENT IN LIEU OF NOTICE (“PILON”) – THE IMPORTANCE OF PILON
In dismissal situations there is plenty of scope for misunderstanding relating to pay, notice and termination of employment. Mistakes could be costly and when it comes to PILON.
When the relationship between an employee and employer has deteriorated, it may be attractive to the employer that the employee should not remain in the workplace during the notice period. In some instances, employers fear sabotage of computer records or client goodwill by employees who are about to leave.
What is PILON?
PILON is a payment made to an employee when employment is terminated without requiring the employee to work their notice. Instead the employee is paid a “lump sum” representing the salary they would have received during the notice period.
Can every employer make a PILON payment?
It depends on what provisions are made in the contract of employment. In some circumstances a contract may specify that termination can be made immediately by making a pay in lieu of basic salary for the notice period. Therefore benefits that would have accrued during the notice period may not need to be paid. However, employers are usually required to pay benefits, when the contractual provision for PILON does not specify what the pay should be for.
If there is a PILON clause in the contract of employment, the amount the employee receives will normally be set out.
If the contract of employment does not contain a PILON clause then the payment would represent damages for breach of contract. If an employer decides to proceed on this basis then it is vital that the employer’s payment to the employee includes other benefits which would have accrued during the notice period such as holiday pay and pension rights, to ensure that the employee does not have an outstanding claim for wrongful dismissal.
Any tips when it comes to PILON?
If an employer wishes to make a PILON payment and would like to avoid disputes it is best to make it clear in the contract of employment, specifying how the PILON is going to be calculated, whether other benefits than salary are to be included and whether the payment will be gross or net of tax. An employer may wish to give notice of termination and make the PILON at the same time so that there are no misunderstandings.