Redundancy Pay & Payment in Lieu of Notice (PILON)

HMRC have introduced legislation which ensures employee’s statutory rights, including redundancy pay and payment in lieu on notice (PILON), are based on an employee’s normal pay and not their furlough pay.

Redundancy pay

An employee is entitled to redundancy pay if they have been working for their current employer for 2 years or more. Redundancy pay is calculated based on an employee’s normal weekly pay. If an employee has been paid less due to being on furlough, ensure the redundancy pay is calculated on what they would have earned before this. Redundancy pay is not taxable up to £30,000.

Payment in lieu of notice (PILON)

Along with redundancy pay, your employer should either:

• Pay you as normal through your notice period
• Make a payment in lieu of notice (PILON)

A payment in lieu of notice is made if employment is ended without notice and is included in your contract. This means your employer will pay you instead of giving you a notice period. You will receive the normal pay you would have during the notice period, including benefits such as pension contributions.

An employer can still offer a payment in lieu of notice if it is not in the employee’s contract, but should be agreed, in writing, between the employer and employee.

If an employee has been receiving reduced pay due to being on furlough, they should receive 100%, or their normal pay while they’re on statutory notice, or being paid for their notice period.

Statutory notice

The following are the minimum notice periods for the length of employment:

• 1 month to 2 years – 1 week
• 2 years to 12 years – 1 week for each year you have worked
• 12 years or more – 12 weeks

Please note that an employee’s contract may specify a different amount of notice to the statutory minimums. This is known as “contractual notice”. An employer cannot give the employee less than the statutory minimum but can give more.

Disclaimer - All information in this post was correct at time of writing.