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Our company is in the process of imposing redundancies. In our contract of employment it states "The company reserves the right to make a payment in lieu of notice", but this appears under the "Duration of Employment & Probationary Period". We have been advised that due to this clause the employee's notice period will be taxable. Can you please advise if this interpretation is correct? We believe/hope it is not the case as each effected individual will pay thousands in additional tax.[FONT="]
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But the clause in the employment contract does not appear to give the employee the right to be paid in lieu of notice (i.e. the right to demand to be paid it if not offered). It only gives the employer the option of paying it.
Whether a month's equivalent is taxed or not can easily amount to thousands for some people in an organisation.
Definitely worth checking out further.
It doesn't matter, either you work out your notice and get paid and taxed on it, or you don't, get a PILON payment and get taxed on that. The tax you pay will be more or less the same
Payment in lieu of notice is not an ex-gratia payment. If there is a notice period in your contract, your employer is obliged to pay it. It is taxed as normal pay. PILON is where the employer is paying it, but telling the employee that they dont have to bother turning up for work during the period of notice. Essentially the employer is doing the employee a favour by not requiring him/her to turn up. Also, unemployment does not kick in until the PILON period is over as during PILON, you are still "employed" by the employer.
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