Definition
PILON (Pay In Lieu of Notice)
Reviewed by BenefitCheck Editorial Team · Updated 18 June 2026
A payment your employer makes instead of you working your notice period — taxed as normal pay.
In plain English
PILON stands for Pay In Lieu of Notice. When an employer wants you to leave immediately rather than work out your notice, they pay you the wages you would have earned during that notice period. Unlike statutory redundancy pay, PILON is treated by HMRC and DWP as ordinary earnings — it is fully taxed and counted as income, not capital.
Why it matters
PILON is the most misunderstood part of a redundancy settlement. Many people assume the whole payment is tax-free up to £30,000, but only genuine redundancy pay gets that treatment. The PILON portion is taxed and counts as earnings in the UC assessment period it lands in — which can wipe out a UC award for that month.
Example
You leave on 1 May with three months' PILON (£9,000) and statutory redundancy of £4,000. The £4,000 is capital (counts toward £6,000/£16,000). The £9,000 PILON is earnings — fully taxed, and treated as income in the assessment period it is paid.
What people often confuse it with
Statutory redundancy pay
Redundancy pay is capital and tax-free up to £30,000. PILON is income and fully taxable.
Holiday pay
Holiday pay on leaving is also earnings, but is a separate calculation from PILON.
Related definitions
Assessment period
The one-month window Universal Credit uses to measure your income, savings and circumstances before paying you.
Work allowance
The amount you can earn each month before Universal Credit starts being reduced — but only if you have children or limited capability for work.
Capital
Money and assets Universal Credit counts towards the £6,000 and £16,000 thresholds — savings, ISAs, Premium Bonds, second properties.