Notice period pay entitlements explained
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Quick answer: When employment ends, statutory or contractual notice periods apply — pay in lieu of notice and garden leave have different tax and benefit implications.
When employment ends, statutory or contractual notice periods determine how much pay you receive and whether you must work your notice. Employers may pay in lieu of notice or place you on garden leave. This guide explains calculations and how notice interacts with redundancy.
Last reviewed:
Read the full work & self-employment guide →Primary source: www.gov.uk/notice-periods
Calculating notice pay
Notice pay includes your basic salary, and commission or regular overtime may count if your contract says so. Read the wording carefully before assuming extras are included.
Benefits in kind such as a company car or health insurance usually continue during your notice period unless your pay in lieu of notice agreement explicitly excludes them. Check your contract for what happens to benefits during garden leave.
Redundancy interaction
Statutory redundancy pay is separate from notice pay and is calculated based on your age, length of service and weekly pay capped at the statutory limit. You need two years' service to qualify for statutory redundancy pay.
Employers may require you to work your notice or offer an ex-gratia payment on top as part of a settlement agreement. Take legal advice before signing any settlement.
Breach of notice
If your employer pays insufficient notice, you may have a claim for wrongful dismissal for the remainder of the notice period you were entitled to receive. The claim is for the pay and benefits you should have received.
If you leave early without your employer's consent, they may withhold pay or pursue you for breach of contract, though suing an employee for this is relatively rare. Check your contract for the notice you must give.
Common questions
Is PILON taxable?
Yes — pay in lieu of notice is always treated as earnings subject to PAYE and National Insurance. It does not benefit from the £30,000 tax-free exemption that applies to some ex-gratia termination payments.
Does notice affect universal credit?
Your final pay may affect the earnings assessment for Universal Credit in the month you receive it. Report the amount through your online journal promptly.
Can notice be waived by mutual agreement?
Yes — a settlement agreement often waives some or all of your notice period in exchange for a lump sum. Take independent legal advice before signing, as you may waive other claims too.