help-pilon

livewire600

gosh why is everything so complicated???

i have been made redundant and have serveral letters (forms from 1st, 2nd and 3rd consultantion meeetings as well as personal letter to myself) all these confirm and i quote "my last day of employment will be 31st march 2009 and that i am not required to work my notice and shall be given 3 month pilon. ok question

does my employment cease on 31st march as stated or 30th june as the lady at hr stated when i rang up, the reason i ask is it makes a difference to my serverance pay due to policy

there is no mention on any of the letters that i am garden leave they all just state i am not reuired to work my notice and will recieve PILON?

What do you reckon

SlyOne_2

Hi,

From my experience, if you take PILON, your employment would end officially on 31 March and you would thus get the 3 months' pay on 31 March itself tax free.

The alternative is for you to work your notice period - if they say you don't have to, then presumably that means putting you on garden leave, in which case your employment would cease on 30 June officially. You would then be paid either in a lump sum at the end of the garden leave or monthly at the end of each period. However, these payments will incur tax.

So, essentially, if you're being offered a tax free lump payment on 31 March (PILON), your official termination date is 31 March.

Hope that helps - that's what I understood from when I was made redundant.

LittleVoice

PILON is, of course, pay in lieu of (in place of) notice. So either you have the notice (and are paid during the period, whether or not you are required actually to work) or you receive no notice but are paid an amount equivalent to what you would otherwise receive.

Whether or not the amount of PILON is tax free depends on the individual's employment contract. PILON is definitely taxable if it is contractual. This could be, for example, if the employer reserves the right to pay in lieu of giving notice.

SlyOne_2

My understanding was if you're paid the amount you would have otherwise been paid in lieu of notice and that it was part of the redundancy package, that amount would then be tax free (up to the legal limits)?

LittleVoice

SlyOne wrote: »

My understanding was if you're paid the amount you would have otherwise been paid in lieu of notice and that it was part of the redundancy package, that amount would then be tax free (up to the legal limits)?

Redundancy payment is separate from contractual right to PILON. I don't believe you can wrap a contractual right to PILON into a redundancy package and say it's therefore tax-free. I'm sure someone will correct me if I'm wrong!

Valli

Little Voice - no you're not wrong
PILON is taxable - by law redundant workers are entitled to a notice period which they would work, be paid for and it would be taxed. PILON is not part of the redundancy package at all.
PILON is paid because employers know full well that those under notice might well 'not have the company's best interests at heart' and might therefore be tempted (as has happened in the past) to exact their revenge.
Not surprisingly this would not be in the best interests of the company - so they pay you to go early.
And you are taxed on those wages.
If you get another job in the meantime though - you are free to take it up...

SlyOne_2

That is very weird indeed. I was made redundant by a Big 4 - and they stipulated very clearly that if I took the money in lieu of notice, it would be tax free and I know colleagues who did take the money and it was tax free. Ergo, they got their redundancy money, plus their last pay cheque (the 28 days' notice) upfront. Their last official day was therefore (as an example) 1st January 2009.

I opted to take garden leave instead such that my money was paid at the end of the notice period, so it's still payment in lieu of notice, but paid at the end of the garden leave, and THIS is the one that's taxable. And effectively, taxman took a big chunk out of my last pay cheque. My last official day as opposed to the colleagues was officially 29th January 2009.

Perhaps different contracts, different rules? Although I would have thought there would be some uniformity in the process?

cash99

LittleVoice wrote: »

Whether or not the amount of PILON is tax free depends on the individual's employment contract. PILON is definitely taxable if it is contractual. This could be, for example, if the employer reserves the right to pay in lieu of giving notice.

This is the correct answer.

If the payment is contractual it is taxed. If there is no contractual right to make a PILON then what is happening is that you are dismissed without notice and paid compensation for the lost income during your notice, this is not taxable.

cash99

SlyOne wrote: »

That is very weird indeed. I was made redundant by a Big 4 - and they stipulated very clearly that if I took the money in lieu of notice, it would be tax free and I know colleagues who did take the money and it was tax free. Ergo, they got their redundancy money, plus their last pay cheque (the 28 days' notice) upfront. Their last official day was therefore (as an example) 1st January 2009.

I opted to take garden leave instead such that my money was paid at the end of the notice period, so it's still payment in lieu of notice, but paid at the end of the garden leave, and THIS is the one that's taxable. And effectively, taxman took a big chunk out of my last pay cheque. My last official day as opposed to the colleagues was officially 29th January 2009.

Perhaps different contracts, different rules? Although I would have thought there would be some uniformity in the process?

For this to be correct then there could be no contractual right for the employer to make a PILON. This is fairly rare these days. If you were on gardening leave then you were still employed during your notice period and the payment for the period is just salary.

You can receive a PILON and have it taxed even when you leave immediately.

getmore4less

The OP was asking about the service calculation.

AIUI you should not lose out by takin a PILON so the redundacy/compensation calculations should include the exta year if the notice would give you another years service.

Tax on the payments is another issue allready covered.

Pete111

Not sure I agree with Getmore4less

If PILON is contractual, companys have argued (often sucessfully) that they can pay it out and end employment without the notice 'casting a shadow' forward in terms of benefits / length of service. It is however a constantly disputed area and I would try my luck re this if I were being made redundant and was a few weeks short of another years service

You may have more luck arguing your case here if your statutory (rather than contractual) notice would take you beyond the line as regards length of service had you worked it.

Statutory notice is basically one week per year of service (up to 12 weeks max) and I recall when dealing with a case on this some years ago, I was advised to honour the extra years service as the nominally accrued statutory notice covered the relavant date even though we had made a PILON.