Payment in Lieu of Notice

[sooky]

Hi Flowery or anyone else. Just following on from another thread and was looking for some clarification on payment in lieu of notice.

My company is currently coming towards the end of a three month consultation period. They are offering a generous redundancy package in excess of the statutory mininum and so far no complaints. However, the proposed terms of the redundancy packages state that you will be paid out your notice period at base salary rate - no benefits (pension, childcare, car allowance etc.). Of course, people who are needed to stay on and work their notice will continue to get their benefits. However, it sounds as though people whose roles are made redundant and for whom there is no more work will be asked to take pay in lieu of notice and finish straight away.

Can you clarify whether or not we should be pushing to get benefits included in our payment in lieu of notice.

[trixymalixy]

PILON doesn't normally include benefits.

PILON can only be paid if it is stated in your contract AFAIK, so it will probably state there that PILON will be salary only.

[ilovemydogandMrObama]

PILON is taxable as it's salary, so would it be possible to negotiate? Would your company be willing to classify it as 'severance pay' for example which isn't taxable?

Get advice from your union or HMRC about what's taxable as it may be possible to negotiate under different headings which would be acceptable to all parties.

But at least know what will be tax'ed and what won't so that any proposal, you will know the real cost and accept/reject on all available information...

[tigerdriver]

It will depend on what the contract says - if there is a PILON clause it might say that it's basic salary only. If there is a PILON clause then it will def be taxable.

If there's a PILON clause but it's not so clear you have an argument that it should include benefits - after all you are losing the benefits and not just the basic.

Just saying it's severance not PILON won't help on the tax front if there's a PILON clause in the contract. If there's no PILON clause in the contract then better argument for the payment being without tax, but employer could just pay the net pay (ie compensate you for your loss, not pay out what it would have cost them).

HTH

[flowerybeanbag]

What tigerdriver said.

If there is a PILON clause in your contract it would normally be for salary only, and because it is contractual then it is taxable.

if there is no provision for paying in lieu of notice, then doing so is breach of contract, so it is effectively 'compensation' for the notice you haven't been given, if that makes sense. Then, because you would also have had benefits during that time, you would want compensation to reflect that as well.

If there is no contractual provision, meaning it is effectively compensation, then it is not taxable, however an employer could be sneaky and only pay the net amount. Most wouldn't do that, however.

So your contract is the first place to start. If there is a PILON clause, you could vcertainly ask for benefits to be taken into account, however they probably won't be. If there is no PILON clause, you should definitely ask and they should be.

[sooky]

Thanks everyone, thanks flowery. There's no PILON clause in our standard contracts so it sounds as though this is something I should be pushing our reps to take up with the consultation committee - thanks again

[trixymalixy]

In that case i would be pushing for benefits to be included as it is breach of contract.

On the tax front, I believe that you should get the first £30k tax free as it is counted as damages. However I have heard of cases where the taxman has taxed it because the company has set a precedent by paying PILON in the past.

see here