Garden Leave vs PILON: What's the Difference and Which Is Better for You?

If your employer has told you that you will not be returning to work before your employment ends, you are likely facing one of two situations: garden leave or payment in lieu of notice. The two are often confused — and sometimes conflated deliberately by employers — but they are legally distinct, with meaningfully different implications for your rights, your tax position, and your ability to start a new role.

What garden leave is

Garden leave is when you remain employed during your notice period but are instructed not to come into work. You are still an employee in every legal sense. Your salary continues to be paid on its normal schedule, your employer pension contributions continue, and your holiday entitlement continues to accrue. You remain bound by your contractual obligations — including any confidentiality clauses and, crucially, any restrictions on working for a competitor.

The reason employers use it is primarily protective. If you have access to sensitive client relationships, strategic information, or commercial data, your employer may prefer to keep you on the payroll but away from the business while they manage the transition. It is common for senior employees, those in client-facing roles, and anyone heading to a competitor.

What PILON is

Payment in lieu of notice is fundamentally different. Your employment ends immediately — on the day you are told — and your employer pays you a lump sum equivalent to what you would have earned during your notice period. There is no ongoing employment relationship. You are free to start a new job the next day if you have one.

Since April 2018, all PILON is taxable as employment income — subject to income tax and National Insurance — regardless of whether your contract contained a PILON clause. This changed the rules that previously allowed PILON without a contractual clause to sometimes be paid free of tax. That position no longer applies.

The key differences side by side

	Garden leave	PILON
Employment status	Still employed	Ends immediately
Pay	Normal salary on regular paydays	Lump sum on termination
Tax treatment	Normal PAYE	Normal PAYE
Benefits	Continue in full	End on termination date
Holiday accrual	Continues	Stops
Can you start a new job?	Generally no	Yes, immediately
Bound by restrictive covenants?	Yes, during the period	Depends on contract wording

How each affects your redundancy pay

Neither garden leave nor PILON reduces your statutory redundancy entitlement — the calculation is based on your age, your length of service, and your weekly pay, regardless of how your notice was handled.

However, as we explained in our guide on PILON and redundancy pay, there is one important nuance with PILON: the "relevant date" used for calculating redundancy pay is the date your employment would have ended had you worked your full statutory notice. This means that if you are close to a service year boundary, receiving PILON rather than working your notice could push the relevant date past your next anniversary — potentially entitling you to an additional year of redundancy pay.

Garden leave does not have this effect, as you remain employed throughout and the relevant date is simply your last day of employment.

Which is better for you?

It depends entirely on your circumstances.

Garden leave is generally better if you do not have another job to go to yet and want the security of continued employment, pension contributions, and benefit coverage while you look. It also gives you time to decompress and plan without financial pressure.

PILON is generally better if you already have another role lined up and want to start it immediately. Waiting out a three or six month garden leave period while being paid by one employer and unable to join another is a significant constraint, particularly in competitive industries.

The tax treatment is identical — both are taxed as normal employment income under PAYE. Neither benefits from the £30,000 tax-free threshold that applies to genuine redundancy pay. This is a common misunderstanding worth being clear about.

What to check if you are on garden leave

Garden leave requires an express contractual clause to be enforceable. If your contract does not contain one, your employer may not have the right to place you on it — and doing so without your agreement could constitute a breach of contract. If you are in any doubt, check your contract carefully.

You are entitled to your full contractual pay and benefits throughout the period. If your employer attempts to reduce your salary, withdraw benefits, or stop pension contributions during garden leave, that is a breach of contract.

Holiday continues to accrue during garden leave. Your employer may require you to take accrued holiday during the period — but only if they give you the correct written notice to do so. Any untaken holiday at the end of the period must be paid out on termination.

Bonus entitlement during garden leave is more complex and depends on the specific wording of your contract and any bonus scheme rules. Some schemes require you to be "actively employed" on the payment date, which garden leave may not satisfy. This is worth clarifying in writing before the period begins.

What to check if you have received PILON

Make sure the figure you have been given represents your full contractual entitlement — your basic salary for the full notice period, plus any contractual benefits that would have continued. If your contract provides for a notice period of twelve weeks, your PILON should reflect twelve weeks of pay.

If your employer has paid less than your contractual notice entitlement, you have a claim for wrongful dismissal — the shortfall being the difference between what you received and what you were owed.

Check also that your redundancy pay has been calculated correctly and separately from your PILON. The two are distinct entitlements and should appear as separate line items in any settlement documentation. See our guide on what counts towards your redundancy pay calculation for the full rules on weekly pay.