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HMRC internal manual

National Insurance Manual

HM Revenue & Customs
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NIM02560 - Class 1 NICs : Earnings of employees and office holders : Payments made on termination of employment : Payments in lieu of notice (PILONs) : 'Gardening leave'

The ‘gardening leave’ scenario is one in which an employer :

  • gives the required period of notice in accordance with the terms of the contract,
  • makes a lump sum payment of the earnings to which the employee would be entitled if they had worked this period, and
  • tells the employee not to turn up for work during the notice period.

The contract does not terminate until the notice period expires. There has not been abreach of the contract of employment because the necessary notice of termination of theemployment has been given, and the employee is therefore not entitled to compensation. Theemployer is not actually making payment of a PILON in these circumstances and is rathermaking a payment of the earnings due under the contract in a lump sum. Such a payment isearnings for the purposes of NICs and is liable for Class 1 NICs in the normal way.