PILON

PILON stands for Pay In Lieu of Notice.  Instead of placing the employee on Garden Leave or making them work their notice, the employer can end the contract of employment earlier by making a payment to the employee that is equivalent to the amount they would have received had they worked their notice.

This can be paid free of tax and national insurance contributions (i.e. Gross) where the employer has not reserved the right to make the payment in the contract of employment or where it is not paid by custom and practice.  This is because by doing so the employer is breaching the employment contract and it is damages for breach of contract.

If the right to make the payment is reserved in the contract of employment or where it is paid by custom and practice, then the payment is subject to deductions and paid net.