A dismissal conversation can move quickly, but your income should not simply stop because your employer wants an immediate exit. Notice pay rights protect employees when employment ends, whether you are dismissed, made redundant or asked not to work your notice. The amount due, and the way it should be paid, depends on your contract, your length of service and the reason your employment is ending.
For employers, getting notice wrong can turn an otherwise managed departure into a breach of contract claim, an unlawful deductions dispute or a wider tribunal risk. Clear contractual drafting and a careful final-pay calculation are often the difference between a clean exit and a costly disagreement.
What are notice pay rights?
Notice is the period between one party telling the other that employment will end and the employment actually ending. During that period, an employee will usually continue working and receiving their normal pay. Alternatively, an employer may place them on garden leave or make a payment in lieu of notice, often called PILON.
Your starting point is your employment contract. It may set out a notice period longer than the statutory minimum, particularly for senior, technical or client-facing roles. An employer must normally honour the more favourable contractual period. A contract stating three months’ notice, for example, will usually entitle the employee to three months’ notice or the value of it, even though the statutory minimum may be much shorter.
Statutory notice provides a legal floor. Once an employee has worked for at least one month, they are normally entitled to one week’s notice. This rises by one week for each complete year of service, up to a maximum of 12 weeks after 12 years’ service. Employees must generally give at least one week’s notice after one month’s employment, although a contract can require more.
These rules can be more detailed where there are changes to hours, sickness absence, variable pay or a fixed-term arrangement. The right answer is not always found by multiplying a weekly salary by the number of weeks’ notice.
Contractual and statutory notice pay compared
Contractual notice is the period agreed between employer and employee. It can be expressed in weeks or months and should be set out clearly in the written statement of employment particulars or contract. It may also explain whether commission, bonuses, allowances, benefits and holiday continue during notice.
Statutory notice is the minimum required by law. Where the contractual period is longer, the contractual provision normally applies. Where the contract gives less than the statutory minimum, the statutory minimum replaces it.
There is an important distinction between the length of notice and the pay due during it. If you work through your notice, you should normally receive the pay and contractual benefits you would have received had employment continued. If you are prevented from working, the employer cannot simply avoid payment without considering the contract and the statutory rules.
Payment in lieu of notice
A payment in lieu of notice ends employment immediately while compensating the employee for the notice period. Many contracts contain a PILON clause allowing the employer to do this. The clause should say what the payment covers, such as basic salary and, where applicable, the cash value of benefits.
If there is no PILON clause, an employer can still agree an immediate departure with the employee. However, imposing one without contractual authority may amount to a breach of contract. That can matter where the employee has restrictive covenants, outstanding share rights or a potential claim arising from the dismissal.
PILON is subject to tax and National Insurance in the usual way. Employers should not assume that labelling a termination payment as compensation changes its tax treatment.
Garden leave
Garden leave is different. Employment continues, but the employee is told not to attend work or carry out their normal duties. They remain employed, continue to be paid and must usually comply with contractual obligations, including confidentiality and restrictions on working elsewhere.
Garden leave can protect client relationships and confidential information, but it must be handled lawfully. A garden leave clause gives an employer greater certainty. Even then, a lengthy period away from work may be disputed if it prevents an employee from maintaining professional skills or carrying out an agreed role.
How is notice pay calculated?
For a salaried employee working fixed hours, notice pay is often straightforward: normal salary continues for the notice period, alongside contractual benefits where the contract requires them. The calculation is more involved for employees with variable hours or fluctuating pay.
Statutory notice pay is generally based on a week’s pay. This may include regular overtime, commission or allowances in some circumstances, particularly where they are part of normal remuneration. The relevant reference period and calculation method can vary, so employers should check the facts rather than relying only on basic pay.
Holiday also needs attention. Holiday continues to accrue during employment, including garden leave and a worked notice period. On termination, untaken statutory holiday must be paid. An employer may require holiday to be taken during notice if it gives the correct notice, but it cannot use holiday arrangements to remove the underlying right to notice pay.
Sickness and family leave can affect what is payable during statutory notice. An employee who is on sick leave, maternity leave, adoption leave, shared parental leave or another protected form of leave may have rights that differ from ordinary contractual pay arrangements. This is an area where a precise calculation is particularly valuable.
When might notice pay not be due?
The most common exception is gross misconduct. If an employee commits a serious repudiatory breach of contract, an employer may be entitled to dismiss without notice. Examples can include serious dishonesty, violence, major breaches of confidentiality or deliberate misuse of company property. The label is not enough: the employer still needs a fair investigation and a reasonable basis for its decision.
A weak or rushed gross misconduct allegation can create significant exposure. If the conduct does not justify summary dismissal, the employee may be owed notice pay and may also have claims relating to unfair dismissal, discrimination or whistleblowing, depending on the circumstances.
Notice may also be treated differently where a fixed-term contract reaches its agreed end date. However, non-renewal can still amount to a dismissal for employment law purposes, and the wording of the contract, the reason for non-renewal and the employee’s service all matter.
An employee who resigns without giving contractual notice may also be in breach of contract. That does not automatically allow an employer to withhold wages already earned. Employers can usually claim only for genuine financial loss caused by the short notice, subject to the contract and the particular facts.
Steps to take if notice pay is missing
Employees should ask for a written breakdown of their final payment promptly. Compare it with the notice clause, payslips, holiday record and any correspondence confirming the termination date. Keep copies of emails, letters and the contract, especially if you were told not to work your notice or were accused of misconduct.
Raise the issue in writing with the employer or HR team, setting out the notice you believe applies and the sum you believe remains outstanding. A clear, focused grievance or letter can often resolve a calculation error without formal proceedings.
Do not leave matters too late. Claims for unpaid wages or breach of contract can have strict time limits, and tribunal time limits are commonly three months less one day from the relevant date. Early conciliation through Acas usually needs to be started before presenting a tribunal claim. Different deadlines and routes may apply to civil court claims, so early advice is sensible.
For employers, the practical response is to audit the termination before the final payslip is issued. Check the contractual notice clause, whether PILON or garden leave is available, accrued holiday, benefits, commission arrangements and any proposed deductions. Record the reasons for any summary dismissal and ensure the process supports the decision.
Notice pay rights in settlement agreements
A settlement agreement often separates notice pay, holiday pay, unpaid salary and any additional compensation for ending employment. The document should state exactly what each payment represents and when it will be made. It should not be used to obscure sums that are already contractually due.
Employees should check whether the agreement requires them to waive claims in return for payments they would have received anyway. Employers should ensure the agreement reflects the correct notice position and includes suitable tax wording. Independent legal advice is required for a valid settlement agreement, and careful advice can identify whether the proposed terms genuinely protect your interests.
Where the figures, the reason for dismissal or the contract are disputed, do not assume the final payslip is the final word. A timely review can clarify what is owed and help you decide the most effective next step with confidence.