One day he’s standing at the coffee machine, making idle chitchat while he waits for his latte, the next he’s gone, disappeared without a trace. ‘Where did Gary go?’ you ask, to shrugging shoulders and bemused looks. Was he abducted by aliens? An MI5 plant? A figment of your imagination?
Fun as the conspiracy theories are, it was probably just PILON – Payment in Lieu of Notice. Here, we’ll give you the lowdown on this commonly used exit strategy so that you don’t get caught in a legal knot when you want to part ways with staff easily, amicably – and quickly.
What is PILON?
Payment in Lieu of Notice (PILON) is where, instead of serving out their notice period, an employee is paid a lump sum and leaves their role immediately. This rapidly speeds up the exit process by effectively buying someone out of their employment contract.
It’s important to note that PILON is not the same as garden leave. With garden leave, the person remains employed for their entire notice period, receiving their salary and benefits as normal, but is not required to work (leaving them free to tend to their garden – hence the term). From an employer perspective, garden leave is a good alternative to PILON if cash flow is a concern.
When and why would you use it?
You might use PILON in any scenario where there is a need for someone to leave the workplace pronto. This desire might come from the employer or the employee.
Maybe there’s been a relationship breakdown and it’s no longer possible for two people to work together. In extreme cases, you might be concerned about damage being done (literal or professional) if someone remains at work.
Perhaps there’s been an incident that means someone no longer feels safe, or is themselves not a safe person to be in the work environment. It could be that a life event drastically and suddenly changes someone’s priorities and commitments. In these kinds of circumstances, as well as a swift exit PILON also offers discretion and privacy.
On the positive side, something exciting but time-sensitive could come up that requires a person to leave immediately. There are various personal and professional reasons someone might want to make a quick exit.
From the employer’s perspective, often it’s just a case of streamlining the departure process. It can also help in restructuring situations, downsizing or mergers, where some roles may not be needed. For SMEs or tech companies, PILON can allow them to be more agile in responding to market changes.
Importantly, PILON cannot be used in place of misconduct or disciplinary procedures, or redundancies, which have their own specific processes and payment calculations.
The legal stuff
There are certain rules to abide by when using PILON, and all the protections given in an employment contract still hold.
Some contracts might include a PILON clause, stating that the employer has the right to terminate a contract in this way. If it doesn’t, then you cannot force an employee to accept PILON unless specific conditions apply (eg gross misconduct or summary dismissal). There must be a mutual agreement.
So if you want to use PILON, it’s critical that you keep all communication about it open, transparent and – most importantly – documented. You need a clear paper trail recording the offer/acceptance of PILON to avoid any misunderstandings.
From the employee’s point of view, it also ensures they get what they are entitled to. And depending on their situation, it may or may not be an appealing offer. There is tax to consider, for example, as well as optics with a future employer.
How do you calculate a PILON payment?
Calculating a PILON payment is pretty easy. It’s basically whatever someone would have been paid, in salary/benefits, had they worked their full notice period. You take their basic salary, multiply it by the number of weeks or months stated as the notice period in their contract, and voila – that’s your PILON payment. Then it’s a simple cost–benefit analysis to see if it’s worth it.
Impact on leave management
When weighing up a PILON offer, consider the leave management angle. A sudden departure will require quick adjustments to workloads, task allocation and redistribution of responsibilities to ensure continuity in the absence of the department staff member.
Depending on the size of the organisation or team, this could throw leave calendars into disarray, so look ahead to see what impact a sudden absence will have.
Key takeaways
While PILON might sound complex, it’s actually pretty straightforward. And it’s worth getting your head around, as its flexibility and efficiency make it a valuable tool for employers.
As ever, the key is to talk to your people. In the right circumstances, PILON might be the best choice for all involved.
