Payment in lieu of notice - advice needed(22 Posts)
I resigned from my job last week, I am on 3 months notice, making my last day 30th Sept, but my manager contacted me on Friday to ask if I would leave early and be paid for my notice period, fine by me as means I get the summer hols off with DCs (I do not have a role to go to at the moment, leaving to speand more time with the family).
HR are due to contact me this week to discuss the details and it was suggested by my manager I would get a lump sum.
My questions are:
- would this sum be (Notice period - 3 weeks worked + hols owed) * salary/52? IE what I would have been paid anyway
- What about my pension? (final salary)
- what about my company car, can I keep till end of the notice period or do I lose that right in accepting a lump sum and, if the latter, should I be compensated for that loss in the notice period?
- I assume any payment will be taxed as normal, is that right?
I can only help with the tax bit - if you take it as a lump sum, it will be taxed as if you earned that every month (ie highly) but you will be able to claim it back at the end of the year.
Sure someone more helpful will be along soon!
You'll lose all your employee benefits by taking the lump sum. Yes pension, life assurance, medical cover etc will all cease or be cancelled. You'll have to return equipment so the car would be returned. This would all happen on an arranged date and would take anything from a few hours to a few days for HR to arrange it. Have they given a proposed date for your employment to end?
An alternative may be gardening leave (stay at home but officially still an employee and available fir work if they need you.)
They are proposing next Friday. Not much time to sort anything out, especially as it would leave me with no car. Do I have to accept or can I push for gardening leave? What is the benefit of me taking a lump sum?
To be clear, your pension wouldn't be cancelled, but you'd leave earlier so would have 2-3 months less time as an active member. That may not be significant though with a final salary scheme. You may only benefit from full years worked so whether e.g. 2/12 or 5/12 worked, both part years would be lost. If the difference is 11/12 or 2/12 (start of new pension year) you could lose out. You'd need to check your own pension scheme details to find out how part years are dealt with.
The benefit of taking the lump sum is your freedom. You could be getting paid in a new job later this month.
The choice is having 10 weeks or so at home rather than at work vs 10 weeks or so of no employee benefits.
If the car's important, do you plan to buy another or would you expect to get another company car in the future, so not want to buy your own?
Not sure about car, as not sure what my plans are at the moment. Had thought i could cope without until I get a new role but going to struggle in the school hols. Was not banking on having to start thinking about buying one next week! ( have had company car for 16 years so not sure where to start!)
So would the sum literally be my salary if I stayed or could it include compensation for loss of benefits? They want me to go ASAP and the summer hols off is very appealing, just want to make sure I get all I am entitled to, been there 16 years.
They might let you keep the car, but you'd be taxed on it as a benefit. E.g. car worth x on the open market, taxed at the same rate as your lump sum.
Also, not a big thing but although you can reclaim income tax, you'd also pay more NI by taking the lump sum, and that can't be reclaimed.
I'm not an expert, this is just from my own experience.
Pay in lieu of notice is just that, your salary up to the end of your notice period. Compensation for loss of benefits is I think more usual if they want you out (redundancy, compromise agreements etc). If you've already resigned I'd expect them to offer straight pay in lieu of notice.
You may lose a few holiday days in the lump sum too. You'd stop accruing annual leave next Friday (or whenever). Unless they count part months you'd lose 3 months' worth.
I'd still take the summer off!
Hopefully HR will have it all documented when they get in touch. It's best to know where you stand though, you can ask for a full breakdown of payments.
Assuming is a genuine redundancy, the first 30k of a lump sum should be paid tax / NIC free. And if the 30k is applicable then the rest of the lump sum should be NIC free too. Now your company will have an interest in that as they pay employer NIC at 13.8%!
Re payment in lieu of notice - it gets complicated! Tax position depends on your contract apart from anything else. How big is your company? HR should know a lot of this.
It is not possible for anyone to answer your questions accurately based on your OP. What the previous posters have said may be right, or it may be completely wrong.
Check your contract to see if there is a clause allowing payment in lieu of notice.
If there is, then your employer is allowed to end your employment immediately, you won't be entitled to benefits in relation to your notice period, and because the payment will be contractual it will be taxable.
If there is no provision in your contract for your employer to pay in lieu of notice, then doing so is a breach of contract. What this means is that the payment you receive is effectively damages for that breach, and is not taxable. Similarly, the breach of contract means you are also losing out on the car and other benefits so the payment should also compensate you for that (or allow you to continue using the car).
Do ask for a breakdown, and check your contract for that clause.
X post with piddlepuddle- there's no question of redundancy as the OP resigned.
My advice would be to see what HR are offering and get it in writing and then BEFORE you make a decision speak to an expert. ACAS may be able to advise.
Thinking about it the fact that they are asking you rather than just telling you this will happen implies to me that there is no contractual right for them to PILON in which case it's more likely to be the tax-free damages scenario I described above.
Than you that is very helpful. I have been here 16 years and never resigned from arole before so a bi in teh dark. I will dig my contract out later but I am pretty sure there is no clause. talking to HR later today I hope
i think re the tax point flowery is right. that being said although it is a damages payment some employers still deduct the tax in which case you will have to reclaim it which is a pain. good news is HMRC have finally given in and accepted if no PILON then not taxable.
Half of this is likely to be incorrect as flowery says. Please be careful about who you take advice from on the Internet. Lots of people really don't know the answers to your questions.
You need to check your contract to see whether the PILON can be made as a damages payment (and therefore tax free up to 30k). If they are asking you to leave early you should ask for damages in lieu of benefits as salary.
IF your employer choses to pay you the net sum despite the fact that your contract does not contain payment in lieu of notice clause, you cannot claim back the tax. No tax will have been paid to be claimed back.
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