Notice Periods & Pay: What Every Employer Needs to Know

Getting notice periods and pay right isn’t just box-ticking.

It’s crucial to staying on the right side of employment law.

Whether you’re drafting a contract, dealing with someone handing in their notice, or managing an exit, knowing what’s required can help you avoid confusion, complaints, and potentially expensive mistakes.

This guide outlines key principles around notice periods and pay, helping HR professionals and employers stay compliant and make informed decisions when employment ends.

What Is a Notice Period?

Employment contracts can be ended by either party giving notice.

The required notice is usually set out in the contract but if it’s silent, the Employment Rights Act 1996 steps in.

9 Things Employers Should Know About Notice Periods and Pay

1. Statutory Minimum Notice

Section 86 of the Employment Rights Act 1996 sets out the legal minimums.

For employers:

• Less than 1 month's service: No notice is required
• 1 month to 2 years' service: 1 week's notice
• 2+ years' service: 1 week per completed year, up to 12 weeks max

Employees must give 1 week's notice after one month of service.

Contractual notice periods can be longer and override these statutory minimums.

2. Notice Pay During Sick Leave

Employees only entitled to statutory minimum notice are entitled to full pay during their notice period even if they’re off sick.

This applies regardless of who gave notice.

If the contractual notice period is more than one week longer than the statutory minimum, then sick pay terms (SSP or company sick pay) apply during notice.

3. Fixed-Term Contracts

These end automatically on the agreed date or event.

If the contract is terminated early, notice provisions (for example- break clauses) in the contract applies and notice may still be required.

4. Contractual Notice and Termination

Ideally contracts should clearly state:

• The length of notice for both parties
• Rights to pay in lieu of notice (PILON)
• Whether garden leave can be used
• Conditions for summary dismissal ( gross misconduct)

5. Pay in Lieu of Notice (PILON)

A PILON clause allows the employer to pay the employee instead of having them work their notice.

It should make clear:

• That it’s an option, not a right
• What the payment includes – just salary or also benefits and bonuses

Without a PILON clause, paying instead of giving notice could be a breach of contract unless you cover all elements of pay the employee would have earned for the duration of the notice period.

6. Garden Leave

Garden leave allows you to keep employees away from the workplace while still paying them during notice.

This can protect your business when employees have:

• Access to sensitive data
• Client relationships
• Plans to join a competitor

But you need a clause in the contract to enforce garden leave lawfully.

7. Dismissal Without Notice

You can dismiss without notice in cases of gross misconduct. This means a serious breach of contract, for example, fraud, violence, or theft.

Your disciplinary policy should list examples, and you must follow a fair procedure before dismissing.

8. How Notice Should Be Given

Notice should be:

• Clear and ideally in writing
• Sent using traceable methods (like email) to avoid disputes
• Given according to the contract, check for any clauses about how notice must be delivered

 

9. Underpayments and Legal Risk 

If notice pay is wrongly calculated, you risk claims for: 

• Wrongful dismissal (breach of contract)
• Unlawful deductions from wages 

Claims can be made in the employment tribunal or county court depending on value.

Tribunals can hear breach of contract claims up to £25,000, but there’s no cap on unlawful deductions. 

A Practical HR Takeaway 

Getting notice periods and pay right is more than a contractual formality, it’s a key part of managing risk.

Whether you're dealing with PILON, sickness absence, or fixed-term contracts, the small print matters. 

Review your contract templates regularly, and if something doesn’t feel right get advice early.  

Prevention is nearly always cheaper (and less stressful) than fixing it later. 

 

We are here to help if you need advice on this contract clause or a complete review of your contracts.