Garden Leave and Pay in Lieu of Notice (PILON) - What You Need to Know

As an employer, when an employee leaves your company, be it due to redundancy, resignation or dismissal, there is plenty of scope for confusion, confrontation and miscalculation. There are ways to mitigate this namely garden leave and Payment in Lieu of Notice (PILON for short).

Understanding PILONs and garden leave comprehensively is the first step to ensuring your business and your employees avoid any unpleasantness during the notice period.

Talk to a HR and Employment Law professional at Croner, today for FREE expert advice. Call 01455 858 132.

• What is garden leave?
• How does garden leave work?
• Gardening leave and employee rights
• Garden leave and redundancy
• Garden leave and holiday pay
• What is PILON?
• What is the difference between PILON and garden leave?
• Get FREE expert support

 

What is garden leave?

Garden leave in the UK is when an employer arranges for an employee to take a period of leave (although this is not strictly classed as leave) for the duration of their notice period, as opposed to attending work or perform their usual duties. They continue to remain an employee, so are still entitled to the regular pay and benefits they’d normally receive as well as still being bound under the terms of their employment contract.

The employee can’t perform any work activities while on this type of leave unless the employer states otherwise. This means, because the employee must remain available for any work that comes in, they cannot go to work for their new employer during this period. Also, contractual clauses, such as the non-competition clause, binds the employee to the employer until their notice period is complete.

Many employees (and employers) ask the question ‘Is garden leave a bad thing?’ The short answer is no. Employees don’t lose any rights or entitlements while on leave, it is mostly a tool for the employer to better manage the company information during the transitional period between an employee leaving, and a new employee starting.

Gardening leave is a useful tool to protect an employer's data by restricting employee access to computers, files and systems, especially those of a sensitive nature. 

How does garden leave work?

The right to place an employee on garden leave is a contractual one, meaning you should include this in a clause when drafting an employee contract. In the clause, you can include details such as who they can communicate with regarding leave, what they should expect regarding attendance at the office, and so on.

This clause is particularly important, as placing an employee on leave without it constitutes a breach of contract. And the employee could claim constructive dismissal.

Gardening leave and employee rights

An employee retains the same rights they would have if they were working their notice period under garden leave.

When an employee hands in their notice, and you wish to place them on garden leave, you will need to clearly set this out in a garden leave letter. Alternatively, you can include a statement relating to garden leave in a letter responding to an employee’s resignation but ensure to include a statement declaring when the leave period begins and when it expires.

Garden leave and redundancy

You can put an employee you’re making after they have been dismissed. This can be done from the start of their notice period up until they exit the business. However, the same rules apply, the employee may not begin new employment until the garden leave period is over.

Garden leave and holiday pay

You can request an employee takes their remaining holiday entitlement during garden leave, so long as they give sufficient notice, and the holiday entitlement doesn’t exceed the notice period. Also, be sure to account for any holiday accrual by the employee during their notice period, as they will continue to accrue holiday during this time.

What is PILON?

(PILON) Payment in Lieu of Notice refers to a payment made to an employee in replacement of a notice period. There are significant differences between a PILON and garden leave.

What is the difference between PILON and garden leave?

The first, and most prominent difference when an employee is placed on garden leave, not only do you have to continue to pay them as normal, but they also remain your employee during the time they are placed on leave. This means they cannot undertake new employment until the period has ended. However, an employee on garden leave is technically still employed, meaning they can claim the same rights and pay, even though they may not be present.

Employees receiving PILON payments do not serve a notice period and are paid for this instead. They are also free to go straight into new employment.

When should employers use PILON?

Pay in Lieu of Notice should be handled with care. Ideally employers should include a clause on PILON in employment contracts to ensure that, from a legal perspective your business is protected.

Instances where PILON might be a viable course of action:

Risk to business from an employee remaining in the organisation after handing in notice. This can include confidentiality concerns and disruption of the working environment. It can also be an option when an employer needs an employee to make a clean exit from their business, although this cannot be used for personnel conflicts.

Employee rights regarding PILON

PILON is not a statutory right (unless the right is included in the contracts terms) which means if an employer terminates an employee’s contract and makes a payment in lieu of notice, this technically constitutes a breach of contract.

From a legal standpoint, PILON payments can be made if the employment contract contains a PILON clause or both the employer and employee have a mutual agreement or settlement that includes a PILON payment.

Employers must adhere to the minimum statutory notice obligations, to ensure that the employee is paid correctly for the period that they would have been working on their notice period.

What should employers consider when implementing PILON?

There are several key points that employers should consider when implementing PILON as any discrepancy could potentially lead to an employee raising a claim against your business.

Businesses should follow the appropriate steps to ensure that PILON is correctly calculated:

Ensure the length of the notice period is correct

• This should be outlined in the employment contract or be based on the statutory requirement.

Make sure that you correctly calculate what the employee would have earned

Be sure to include base salary, benefits that the employee would usually be able to access as well as guaranteed bonuses and commission payments.

Contractual extras

• This could include things like accrued holiday.

Tax and national insurance

• PILON should be reviewed with a payroll specialist as there are certain rules when it comes to tax and PILON.

PILON can be tricky to navigate, so if there is any uncertainty, contacting an employment law professional is recommended.

Get FREE expert support

For further insight into gardening leave and PILON, contact a member of our professional HR and Employment Law advisory team. With over 80 years' experience in assisting UK businesses with the intricacies of employment legislation and best-practices, we have earned our reputation of best in class. No wonder we are trusted by over 14,000 businesses across the UK.

Contact a Croner for FREE, today on 01455 858 132.