Overview
Handling termination payments correctly is crucial for compliance and ensuring a smooth exit process for departing employees. Beyond standard final pay, certain scenarios like redundancy, pay in lieu of notice, and gardening leave require special attention. This guide provides a clear overview of each to help you navigate these complex situations.
⚠️ Important: The rules governing termination payments can be complex. We always recommend seeking specific employment relations advice before making a final decision. If you need assistance with understanding these payments, please contact Tempus Support.
Redundancy Payment
A redundancy payment is a form of compensation paid to an employee whose position is disestablished because it is surplus to the genuine needs of the business. Entitlement to this payment is not automatic and must be specified in the employee's employment agreement.
Example:
A company undergoes a major restructuring due to new technology automating several roles. David's position as a data entry clerk is identified as no longer being required. As his employment agreement includes a redundancy clause, he is made redundant and receives a compensation payment as part of his final pay.
Pay in Lieu of Notice (PILON)
Pay in Lieu of Notice (PILON) is a payment made to an employee to cover their notice period, but their employment terminates immediately without them having to work. Typically this can only be done if a specific PILON clause exists in the employment agreement or if both parties mutually agree to it.
Example:
Anna, a senior software developer, resigns to join a direct competitor. To protect sensitive intellectual property and prevent her from having further access to company systems, her employer enacts the PILON clause in her contract. Her employment ends on her last day of work, and she is paid a lump sum for her entire notice period.
Gardening Leave
Gardening Leave is when an employee is instructed to stay away from the workplace and cease their duties during their notice period, while still remaining an employee and receiving their normal pay and benefits. This is used to protect business interests while ensuring the employee serves out their full notice period.
Example:
Leo, a Regional Sales Director, resigns. To maintain stability with key client relationships, the company places him on gardening leave for his three-month notice period. He remains an employee and is paid as normal but cannot contact clients or start his new role. This gives the company time to transition his responsibilities and communicate the change to its customers effectively.