What is payment in lieu of notice?

Instead of working your 2 weeks (or longer) notice, your employer can pay you off and ask you to leave immediately. This is called PILON—Payment In Lieu Of Notice.

Your employer has 2 weeks notice period to give you. Instead of you working those 2 weeks, they can offer you a lump sum and say "you can go today". The payment covers the wages you would have earned during those 2 weeks.

PILON is entirely your employer's choice (unless your contract guarantees it). They cannot force you to accept it—you can insist on working your notice and getting paid. But in practice, most employers prefer it.

• Your basic salary for the notice period (2 weeks × your weekly pay)
• Any bonuses or commissions due for that period (if contractually entitled)
• Pension contributions for the notice period
• Benefits (health insurance, company car) for the notice period

It should NOT include pay for accrued but unused holiday—that's a separate entitlement.

PILON is normally subject to income tax as if you were receiving your salary. This isn't a tax-free payment—it's replacement pay. So if you'd earn £1,000/week and get 2 weeks PILON, that £2,000 is taxed as normal salary.

This matters because PILON might push you into a higher tax band (e.g. into 40% tax) even though it's just replacement pay.

Technically yes. If your contract doesn't allow PILON, you can insist on working your notice. But in practice, if your employer wants you gone, they'll offer PILON and expect you to accept.

If you're facing redundancy or dismissal and want a quick exit, PILON is often better—you get paid and can move on immediately. But check the amount is correct (full notice period pay, no deductions).