🇬🇧 UK · Employment Law · Updated 2026-06-27
PILON vs garden leave: what's the difference?
When an employer ends your employment or you resign, you are entitled to a notice period. Rather than having you work that notice, employers can either pay you a lump sum in lieu of notice (PILON) or put you on garden leave. Both bring your active working to an end immediately, but the legal and financial consequences are different.
Key differences at a glance
| Aspect | PILON | Garden leave |
|---|---|---|
| Employment status | Employment ends immediately on the day PILON is paid | Employment continues for the full notice period |
| Payment | Lump sum equal to your notice period pay, paid immediately | Normal salary continues monthly during the notice period |
| Tax treatment (post-April 2018) | Fully taxable as earnings under ITEPA 2003 s.402E | Fully taxable as normal salary |
| Benefits continuation | Benefits (health, pension) normally cease immediately | Benefits continue for the duration of the notice period |
| Restrictive covenants | Courts may be reluctant to enforce post-employment restrictions if employer chose to end employment early | Covenants supported by continued employment — more easily enforceable |
| Right to work elsewhere | Free to start new job immediately (unless covenant restricts) | Cannot work for a competitor; employer can require you to stay available |
| Holiday accrual | No further accrual after termination; accrued balance paid in final payment | Holiday continues to accrue; employer may require you to take it during garden leave |
| Bonus and commission | Depends on contract wording — may be excluded | Bonus/commission may continue to accrue if the relevant period falls within garden leave |
| When employer uses it | To end the relationship quickly, especially where the employee's presence is a risk | To honour the notice period legally while keeping the employee out of the office |
The bottom line
PILON gets you your money faster and frees you to start a new job immediately — but you lose the benefit continuation and possibly bonus accrual you would have received on garden leave. Garden leave is better if you have a bonus, commission, or long-term incentive vesting during the notice period. Always check your contract: some contracts include an express PILON clause, which determines whether your employer has the right to pay you out rather than require you to work or put you on garden leave.
Notice period calculator
Calculate →Redundancy pay calculator
Calculate →Frequently asked questions
Is PILON taxable in the UK?
Yes, fully. Since 6 April 2018, all PILON — whether or not your contract includes a PILON clause — is treated as earnings and is subject to income tax and National Insurance contributions under ITEPA 2003 s.402E. The old distinction between contractual and non-contractual PILON no longer exists for tax purposes.
Can my employer put me on garden leave without my consent?
Only if your contract includes an express garden leave clause. Without one, an employer cannot simply instruct you to stay away from the office — you have an implied right to work (particularly important for roles where skills must be maintained, such as surgeons or traders). In practice, most senior employment contracts include express garden leave provisions.
Can I negotiate between PILON and garden leave?
Yes, particularly at senior levels. The choice often depends on what you want: if you have a new job offer, PILON lets you start immediately. If you have bonuses vesting during the notice period, garden leave may be worth more. Settlement agreements often involve negotiating the structure of the exit payment, including how the notice period is handled.
Does garden leave count towards continuous employment?
Yes. Garden leave is a period of employment — you remain employed throughout, your service years accumulate, and your employment rights continue. PILON ends employment immediately, so the date of termination is the date the payment is made, not the end of what would have been the notice period.
What is the difference between PILON and a settlement agreement payment?
PILON is specifically the payment of notice period wages instead of working notice. A settlement agreement is a broader agreement terminating the employment relationship, which can include PILON, statutory redundancy pay, ex gratia payments (up to £30,000 tax-free), and other elements. PILON is always fully taxable; the ex gratia element of a settlement may benefit from the £30,000 exemption.