UK Redundancy Notice Pay 2026: Statutory Notice, PILON, Garden Leave

When you're made redundant in the UK, you're entitled to a notice period - paid time before your employment formally ends. The notice can be worked, paid in lieu (PILON), or covered by garden leave. Each route has different tax and NI treatment, and getting the mechanics wrong is a common payroll error in redundancy.

Statutory minimum notice

UK statutory minimum notice (under the Employment Rights Act 1996) depends on length of service:

Continuous service	Statutory minimum notice
Less than 1 month	None
1 month to 2 years	1 week
2 years to 12 years	1 week per year of service
12 years or more	12 weeks

Your contract may specify longer notice - that overrides statutory. A 5-year employee with a 3-month contractual notice gets 3 months, not 5 weeks.

The four notice mechanisms

Mechanism 1 - Worked notice

You continue working through the notice period at your normal salary. You keep your full benefits (pension, healthcare, company car, etc.) until the end of notice.

Tax treatment: ordinary salary, normal PAYE + NI + pension as if it were any other working period.

Mechanism 2 - PILON (Pay In Lieu of Notice)

The employer pays you the notice period as a lump sum and ends your employment immediately. You don't have to work the notice.

Tax treatment (since 2018 reform): PILON is fully taxable as ordinary income - PAYE income tax + employee NI + (since April 2020) employer NI. This was a deliberate change to close a loophole where notice was sometimes treated as the £30,000 tax-free redundancy payment.

A typical £15,000 PILON for a higher-rate taxpayer:

• Tax at 40%: £6,000
• Employee NI at 8% (above PT): around £600
• Net: around £8,400 from £15,000 gross.

Mechanism 3 - Garden leave

The employer keeps you on the payroll but doesn't require you to work. You typically can't start a new job during garden leave (your contract still binds you). You can keep benefits (sometimes negotiable).

Tax treatment: ordinary salary, normal PAYE + NI as if you were working. From the tax authorities' perspective, garden leave is identical to worked notice.

Mechanism 4 - Mixed (partial PILON)

Common arrangement: employer asks you to work some of the notice (handover, training your replacement) and pays the rest as PILON.

Tax treatment: each portion taxed by its own rule - worked portion as salary, PILON portion as PILON.

PILON tax: the 2018 reform

Before April 2018, employers and employees sometimes structured PILON as part of the £30,000 tax-free redundancy payment under Section 401 ITEPA 2003. The 2018 reform introduced Post-Employment Notice Pay (PENP) - a calculation that ensures any PILON-equivalent amount is taxed as ordinary income, even if the contract didn't explicitly call it PILON.

PENP calculation (simplified):

PENP = (Basic Pay during the unworked notice period)
     + (Statutory benefit-in-kind value during the unworked period)
     - (Contractual PILON already taxed)
     - (Other amounts already taxed as salary)

If PENP is positive, the employer must withhold tax + NI on it.

The practical upshot: structure your settlement to minimise unnecessary PENP - but don't try to game it. HMRC's PENP rules are tight.

How notice pay shows on your final payslip

A clean redundancy final payslip should show:

• Final salary for worked period - last full month/week worked.
• PILON or garden-leave pay - if applicable, marked separately.
• Statutory redundancy payment - the £30,000-tax-free amount under Section 401.
• Class 1A NIC on excess redundancy - employer NIC on the slice above £30,000.
• Holiday pay accrued - pay for any unused statutory holiday.
• Pension contributions - typically continue through worked notice; may stop at PILON date.
• Final tax code - usually unchanged (W1/M1 only if HMRC issues a non-cumulative code).

Common errors:

• PILON wrongly treated as redundancy (subject to £30,000 exemption when it shouldn't be).
• Holiday pay missed entirely.
• Pension contribution stopped a month before official end date.
• Tax code reverting to a non-cumulative code in the final period.

Notice period during sick leave or maternity leave

If you're made redundant during a period of statutory absence (sick leave, maternity leave, paternity leave), specific rules protect you:

• Statutory benefit continues through the notice period at the same rate.
• Notice pay is calculated on your normal full pay - not the reduced statutory rate.
• Maternity rights include enhanced redundancy protection: priority for alternative roles + extended consultation.

If you suspect your notice pay was calculated on the reduced rate (SSP, SMP, etc.) instead of full pay, this is a common payroll error to challenge.

Garden leave clauses - what to check

Common garden leave clauses include:

• Cannot work for a competitor during garden leave (often extended for 3-12 months post-employment).
• Cannot solicit clients or staff for a period.
• Must remain available to consult on transition matters.
• Benefits continue at employer discretion (negotiable).

These clauses are enforceable to the extent they protect a legitimate business interest and are reasonable in scope and duration. If a clause is overly broad, courts may strike down the entire restraint.

What to negotiate at redundancy

Things to push for during settlement negotiation:

• Longer notice period (especially if you're senior and need time to find similar work).
• PILON instead of working notice (sometimes preferable for new-job start dates).
• Continued benefits (healthcare, life insurance) for 3-6 months post-employment.
• Outplacement support (career coaching, CV review - typically £500-£3,000 service from outplacement providers).
• Reference clause in writing.
• Settlement payment above statutory minimum - for senior roles or contested redundancies.

Settlement agreements

For higher-value settlements (£10,000+), employers often use a Settlement Agreement (formerly Compromise Agreement). You waive your right to bring an Employment Tribunal claim in exchange for the settlement.

Before signing:

• You must get independent legal advice (employer typically pays £500-£1,500 for a solicitor to review).
• The agreement must specify which claims are waived.
• Any ongoing payments or benefits should be itemised.
• Tax treatment of each component should be clearly stated (some elements £30k tax-free under Section 401, some PILON-taxed, some statutory redundancy).

See our redundancy tax guide for the full tax structure.

When to talk to a specialist

For most routine redundancies (small employer, statutory notice, statutory redundancy), DIY using ACAS guidance works fine. A specialist employment solicitor earns their fee when:

• Settlement value is £20,000+ (the upside often justifies legal costs).
• You suspect discrimination (age, gender, race, disability) was a factor.
• You're being asked to sign a restrictive covenant that affects your next job.
• The redundancy is part of a larger reorganisation with collective consultation issues.
• You're in a senior role where the package can be substantially negotiated.

ACAS (0300 123 1100) offers free advice. The Law Society lists employment solicitors at solicitors.lawsociety.org.uk.

Disclaimer

PayslipIQ provides automated educational guidance based on the figures you supply. It is not regulated employment-law or tax advice. Redundancy notice and PILON rules are technical - for substantial settlements (especially above £30,000) or contested redundancies, contact ACAS on 0300 123 1100 or use a regulated employment solicitor.