UK · Guide
Garden leave, PILON or working notice: what's the difference?
After you hand in your notice — or are given notice — your employer has three ways to handle the period before your employment officially ends. You can work it as normal, be placed on garden leave, or be paid in lieu of notice (PILON). Each has different consequences for your pay, your tax, your holiday accrual, and the restrictive covenants in your contract. This guide explains all three in plain language, when each one tends to get offered, and what to watch out for.
Working notice: the default
Working notice is what happens by default unless your employer chooses otherwise. You keep showing up, doing your job, drawing your normal salary and accruing holiday and pension contributions exactly as before. Your employment ends on the last working day stated in your letter.
This is the simplest path for everyone. It is also the option most resigning employees prefer, because it preserves access to systems and colleagues for a proper handover and a smooth reference conversation later.
A working notice can be partial: some employers will agree to a shorter notice if you ask and the handover is genuinely complete. That is a negotiation, not a right — get any reduction confirmed in writing before you stop coming in.
Garden leave: paid, but no work
Garden leave is your employer's choice. You remain employed — still on the payroll, still accruing holiday and pension, still bound by your contract — but you are told not to come in, not to contact clients, and often not to access systems. The phrase comes from the idea that you can spend the time in your garden.
Employers use garden leave when they want to keep you out of the market for the notice window: to stop you starting at a competitor, to insulate clients from a handover with you in the room, or to protect commercially sensitive information. It is most common for senior roles, sales staff, and anyone heading to a direct competitor.
Crucially, garden leave is only enforceable if your contract permits it. Without an explicit clause, an employer who locks you out and stops giving you work could be in breach themselves. Check your contract carefully.
- You are still employed and on full pay.
- Holiday and pension keep accruing.
- You usually cannot start a new job until your contracted end date.
- Confidentiality and restrictive covenants still apply.
PILON: payment in lieu of notice
PILON ends your employment immediately. Instead of working the notice period, you receive a lump sum representing what you would have earned during it, and your last day is the day the PILON is paid (or the day stated in the agreement).
PILON also requires a contractual basis. If your contract has a PILON clause, your employer can invoke it unilaterally. Without one, paying you off early is technically a breach of contract — though in practice both sides often agree to it because it suits everyone.
Tax treatment changed in April 2018. PILON is now treated as earnings: it is fully subject to income tax and Class 1 National Insurance, whether or not your contract contains a PILON clause. The HMRC framework is called Post-Employment Notice Pay (PENP). Treat the headline figure as a gross number — what lands in your account will be less.
Holiday, covenants and which to accept
Holiday accrual works differently across the three. On working notice or garden leave you continue to accrue holiday and any untaken balance is paid out at the end. With PILON, accrual stops on your termination date, so the cash value of remaining holiday is typically rolled into the PILON payment itself — check the breakdown.
Restrictive covenants — non-compete, non-solicitation, non-dealing — survive in all three cases, but their start date differs. With working notice or garden leave, the clock usually starts on your last working day. With PILON, it usually starts on the termination date. The practical effect can be very different if your covenant period is six months and you are headed to a competitor.
Which to accept, if you have a say, depends on your next move. If you are starting elsewhere quickly, PILON tends to be the cleanest break. If you want time to decompress with pay, garden leave can be a generous option. If you are leaving on good terms with no immediate next step, working notice preserves the most goodwill.
Frequently asked questions
Can I demand PILON instead of working my notice?
No. PILON is your employer's option, not yours. You can ask for it as part of an exit negotiation, but they are not obliged to agree unless your contract specifies otherwise.
Can I take another job while on garden leave?
Usually not — you are still employed, so the loyalty and exclusivity terms in your contract still apply. Some employers will release you early if the new role is not competitive; ask in writing.
Is PILON paid as a single lump sum?
Almost always, yes. It is processed through payroll as a final payment, with income tax and National Insurance deducted under the Post-Employment Notice Pay (PENP) rules.
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