Notice Period Pay Calculator UK

Notice Period Pay: Complete Guide for UK Workers 2025/26

When employment ends, understanding your notice rights is crucial. Whether you are being made redundant, dismissed, or resigning, the law provides minimum protections — and your contract may give you more. This guide covers everything from statutory minimums to garden leave and the tax treatment of payments in lieu.

Statutory vs Contractual Notice: Always Take the Greater

UK employment law sets a floor for notice periods under the Employment Rights Act 1996 (section 86). The statutory minimum is one week's notice for each complete year of continuous employment, up to a maximum of 12 weeks. This applies once you have worked for at least one calendar month.

Your employment contract will usually specify a longer notice period — particularly at senior levels, where three, six, or even twelve months' notice is common. The golden rule is that you are always entitled to whichever is the greater: the statutory minimum or your contractual notice. An employer who attempts to give you less than your statutory entitlement commits a breach of contract, and a worker who attempts to leave with less notice than contractually specified does the same.

What Is Garden Leave?

Garden leave (sometimes spelled "gardening leave") is a common feature of senior employment arrangements. When an employee is on garden leave, they remain employed throughout their notice period, continue to receive their full contractual salary and benefits, but are instructed not to attend work, access company systems, or contact clients and colleagues.

Employers use garden leave to protect legitimate business interests: preventing the employee from taking confidential information to a competitor, maintaining relationships with clients, and ensuring the employee cannot immediately begin work for a rival. Courts have upheld the right of employers to place employees on garden leave even where there is no explicit contractual garden leave clause, provided the employer has a reasonable business justification.

From the employee's perspective, garden leave is often preferable to a bare termination: they continue to be paid in full and accrue all benefits (including holiday entitlement, pension contributions, and benefits in kind). The period also counts as continuous service for any employment rights purpose.

An important feature of garden leave is its relationship with post-termination restrictive covenants. Non-compete clauses typically run from the end of the notice period — which means a six-month non-compete combined with a six-month garden leave period effectively keeps an employee out of the market for a year from when they are first asked to leave. Courts take a dim view of employers stacking these mechanisms unreasonably, and will not enforce restrictions that are disproportionate.

Payment in Lieu of Notice (PILON)

Payment in lieu of notice is a lump sum paid to an employee in place of serving a notice period. The employer does not require the employee to work or sit at home — the employment ends immediately, and the employee receives a cash payment representing the pay they would have earned during the notice period.

PILON may be exercised by the employer (where a PILON clause exists in the contract, or by mutual agreement) or, in cases of wrongful dismissal, awarded by a court. If an employer dismisses without notice and without a PILON clause, the dismissal is wrongful — but the correct remedy is a claim for damages, not automatic entitlement to reinstatement.

Tax Treatment of PILON: Fully Taxable Since April 2018

The tax rules around PILON changed fundamentally on 6 April 2018 with the introduction of Post-Employment Notice Pay (PENP) rules under Finance (No.2) Act 2017. Before that date, PILON could sometimes benefit from the £30,000 tax-free termination payment exemption if the contract had no express PILON clause. That planning opportunity was removed.

From April 2018, all PILON — whether contractual or non-contractual — is treated as earnings and is subject to both income tax (through PAYE) and employee National Insurance Contributions. The PENP formula calculates the taxable PILON as: (Basic Pay ÷ Pay Period Days) × Notice Days. The employer must apply PAYE and NI to this amount before paying it to the employee.

Any additional termination payments (such as enhanced redundancy pay above the statutory amount, or ex-gratia payments) may still benefit from the £30,000 exemption, provided the PENP has been correctly separated out and taxed first.

Redundancy and Notice Pay: Combined Rights

When an employee is made redundant, they are entitled to both statutory redundancy pay (for employees with at least two years' service) and their full notice period entitlement. These are separate rights. Employers cannot offset the redundancy payment against the notice pay. The redundancy payment compensates for the loss of the job; the notice pay compensates for the period of notice that should have been worked.

Statutory redundancy pay is calculated on a different basis: half a week's pay for each year worked under age 22, one week's pay for each year worked aged 22-40, and one and a half weeks' pay for each year worked aged 41 and over. Weekly pay is capped at £643 (2025/26) and total statutory redundancy pay is capped at £19,290. Many employers offer enhanced redundancy packages above the statutory minimum.

Wrongful Dismissal: Suing for Notice Pay

Wrongful dismissal occurs when an employer terminates employment without giving the notice the employee is contractually entitled to, and without paying PILON instead. It is distinct from unfair dismissal (which concerns the fairness of the dismissal) and is a straightforward breach of contract claim. The remedy is damages equal to the net pay the employee would have received during the notice period — not reinstatement, and not compensation for hurt feelings.

Claims for wrongful dismissal up to £25,000 can be brought in an Employment Tribunal (usually within three months less one day of dismissal). Larger claims must be brought in the County Court or High Court (within six years). Unlike unfair dismissal, there is no minimum period of service required to bring a wrongful dismissal claim.

Non-Compete Clauses and Notice Periods

Post-termination restrictive covenants — including non-compete, non-solicitation, and non-dealing clauses — are enforceable in English law to the extent they protect a legitimate business interest and go no further than is reasonably necessary. Courts assess enforceability at the time the contract was entered into, not at the time of dismissal.

Importantly, restrictive covenants run from the end of the notice period (or end of garden leave, if applicable) — not from when the employer first told the employee they were leaving. This is why employers often combine substantial garden leave periods with shorter non-compete periods: the two mechanisms together extend the period during which the employee cannot work for a competitor.

If an employer wrongfully dismisses an employee (e.g., dismisses summarily without cause or PILON), the restrictive covenants in the contract may become unenforceable. An employee who is dismissed in repudiatory breach of contract is released from their obligations under it — including non-compete clauses. This is a significant consideration for both parties.

Frequently Asked Questions