Navigating notice periods and pay can be a legal and logistical minefield for employers. Whether you’re drafting contracts, handling resignations, or managing dismissals, understanding your obligations is key to avoiding disputes and costly claims. This guide outlines the key principles around notice periods and notice pay to help HR professionals and employers stay compliant and make informed decisions when employment ends.

Employment contracts can generally be ended by either party serving notice to terminate them. How much notice is required is usually set out in the contract of employment. If the contract is silent then statute (Employment Rights Act 1996) steps in.

Here are 10 things all employers should know about notice periods and notice pay

Statutory minimum notice

The Employment Rights Act 1996 (s86) sets out minimum notice periods which employees should receive from their employers:

  • less than 1 month’s service: no notice required
  • 1 month–2 years’ service: 1 week’s notice
  • 2 years or more: 1 week per year of service, up to a maximum of 12 weeks

Employees must give 1 weeks’ notice after one month of service. Longer contractual notice periods override statutory minimums.

Notice pay during sickness absence

Employees who are entitlement to receive only statutory minimum notice from their employer receive full pay during their notice period, even if they are off sick. This rule applies regardless of whether it is the employee or the employer who has given notice. For those who are entitled to receive a longer contractual notice period from their employer (more than one week more than statutory minimum), sick pay terms (e.g. SSP or company sick pay) apply.

Fixed-term contracts

Fixed-term contracts end on a specified date or event. If terminated early, notice provisions (e.g. break clauses) in the contract will apply.

Contractual notice and termination

Employment contracts should ideally explicitly define notice periods, including:

  • length of notice for both parties
  • rights to pay in lieu of notice (PILON)
  • garden leave provisions
  • termination without notice for gross misconduct

Pay in lieu of notice (PILON) clauses

A well-drafted PILON clause should state that payment in lieu is not a right, it is an option available to the employer. It should specify what is included in the payment (for example, whether basic salary only is payable or whether other benefits will also be paid in lieu). If no PILON clause exists, payments in lieu will be a technical breach of contract and will need to include a sum equivalent to contractual benefits and other payments such as bonus as well as basic pay to avoid the risk of a breach of contract claim for loss.

Garden leave

Garden leave keeps employees on payroll but away from work during their notice period, ensuring control over their activities and preserving business interests. It can be particularly useful if there are concerns that the employee might be moving to work for a competitor or if they are privy to sensitive commercial information. A contractual clause is needed in order to be able to do this lawfully.

Dismissal without notice

Employees who are found to have committed gross misconduct may be dismissed without notice. This requires evidence of a fundamental breach of contract. Examples are generally set-out in the employer’s disciplinary policy and will include things such as fraudulent behaviour, violence at work and theft.

Communicating notice

Notice should be communicated clearly and, ideally, in writing. Best practice is to use traceable forms like email to avoid disputes. Contracts of employment often include clauses setting out how notice must be given – this should be checked before any correspondence is sent.

Legal claims and underpayments

Failing to pay notice correctly may lead to claims for wrongful dismissal or unlawful deductions from wages. Contractual claims in the employment tribunal are subject to a limit of £25,000. Unlawful deductions claims are unlimited. Employees can seek damages via the employment tribunal or the county court, depending on the claim’s value and complexity.

Special cases

In rare instances, courts may prevent employers giving notice to terminate a contract of employment where giving notice would cause significant harm to the employee, such as loss of key benefits. This happened in the case of Aspden v Webbs Poultry where an employer was prevented from giving notice when, in so doing, it would have removed an employee’s entitlement to permanent health insurance.

Getting notice periods and pay right isn’t just a contractual formality, it’s a key part of risk management in HR. From PILON clauses to sickness absence and fixed-term contracts, the details matter. Employers should review their contract templates regularly and seek advice where needed to ensure they’re protected and acting fairly. If in doubt, take legal advice early – prevention is usually cheaper than the cure!