Should you always have a payment in lieu of notice (“PILON”) clause within your employment contracts?

In short, yes. Should you not have one and still make a PILON payment you will be in breach of contract. This will have three main consequences for an employer:

  1. It will entitle the employee to damages for breach of contract which would put the employee in the position had you not breached the contract. So, they would be entitled to all benefits that would have accrued during the notice period i.e. holidays, pension rights, commission, contractual bonuses etc. A PILON payment can be just confined to “basic salary” and not include any other benefits.
  2. Damages are not subject to Tax and NI, unlike a PILON payment, so this will cost you more!
  3. The employment contract will not be enforceable because of your breach. This will release an employee from any post-termination obligations i.e. restrictive covenants and confidentiality clauses.

Having a PILON will not only save your business money but it will ensure that you can legally enforce any post-termination obligations/restrictions should the need arise.

If you are a business owner and have a burning HR/employment law question, please contact Jake on 01564 739 103 or jake.holloway@schofieldhr.co.uk 

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