PILON stands for Payment in Lieu of Notice. It is a practice where an employer ends an employee's contract immediately instead of requiring them to work through their notice period. The employee receives a lump sum equal to the pay they would have earned during that time.
How PILON Works
- Immediate Termination: The working relationship ends on the spot. The employee is free to apply for new jobs right away.
- Vs. Garden Leave: Garden leave means the employee stays on the payroll but does not work. With PILON, they are no longer an employee.
You must process in payroll with regards to taxation of PILON differently depending on how the contract is written:
Contractual PILON
- If the employment contract contains an explicit clause allowing the employer to pay in lieu of notice, the payment is fully taxable.
- Irish Revenue treats this as standard contractual earnings.
- It must be processed through payroll with normal deductions applied: Income Tax (PAYE), Pay Related Social Insurance (PRSI), and the Universal Social Charge (USC).
Non-Contractual PILON - please contact the Workplace Relations Commission (WRC) for more advice if you are unsure whether PILON is included in the employee contract, as it can be treated differently in some circumstances. BrightPay cannot advise on employment contractual situations.
How to process PILON in BrightPay:
PILON is processed on the employee's final payslip as part of their leaving pay and not as a payment after leaving.
- Enter the employee's leaving date in their record
- Go to their payslip for the final pay period
- Add the PILON amount as an Addition on the payslip; create or select an addition type such as 'Payment in Lieu of Notice' or 'PILON'
- Set the tax treatment; depending on the contract and WRC advice, enable the taxable element to the addition type.
- Process and finalise the payslip as normal
- Submit the PSR with the employee's leaving date to Revenue
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