Payment in Lieu of Notice sounds simple, but PILON mistakes are a growing source of WRC claims in Irish employment law. Missing contract clauses, wrong calculations, and skipped procedures leave employers exposed to unfair dismissal findings Read more
Payment in Lieu of Notice, commonly known as PILON, sounds like one of the simpler parts of employment law in Ireland. You pay the employee for their notice period, they leave immediately, and the relationship ends cleanly. In practice, PILON is one of the most frequently mishandled steps in the termination process.
A recent HRHQ analysis of PILON risks highlighted how incorrect management of notice periods at termination can expose employers to unexpected unfair dismissal claims. The issue catches employers off guard because they assume that paying the money is enough to close the matter. It rarely is.
At Purpletree HR, we regularly support employers through terminations where PILON is in play. The mistakes we see follow a pattern, and they are almost always avoidable with the right contracts and processes in place.
Payment in Lieu of Notice (PILON) allows an employer to end the employment relationship immediately by paying the employee for their notice period instead of requiring them to work it. Getting it wrong, whether through incorrect calculations, missing contract clauses, or using it to sidestep fair procedures, can lead to successful unfair dismissal claims at the WRC. Employers should treat every PILON decision as a compliance event, not an administrative shortcut.
Under the Minimum Notice and Terms of Employment Acts 1973-2005, employees with at least 13 weeks of continuous service are entitled to a minimum notice period before their employment is terminated. Statutory minimums range from one week (for employees with up to two years’ service) to eight weeks (for those with fifteen or more years).
PILON is the mechanism that allows an employer to pay the employee for that notice period rather than requiring them to work it. The concept seems straightforward. The problems begin when employers treat PILON as an informal arrangement rather than a specific contractual right.
If the contract of employment does not contain a specific PILON clause, paying an employee in lieu of notice may actually constitute a breach of contract by the employer. This distinction matters more than most employers realise, because it affects when the employment legally ends and how continuous service is calculated.
This is where PILON becomes genuinely dangerous. Under the Unfair Dismissals Acts 1977-2015, an employee generally needs 12 months of continuous service before they can bring an unfair dismissal claim to the WRC.
Many employers time terminations with this threshold in mind. An employee at 11 months might be let go before they reach the 12-month mark. The employer pays PILON, considers the matter closed, and assumes the employee cannot claim unfair dismissal.
The problem: without a valid PILON clause in the contract, the employment may not have ended when the employer thinks it did. The notice period may still run, adding weeks to the employee’s continuous service. An employee terminated at 11 months and two weeks, with a statutory notice entitlement of one week, could reach the 12-month threshold if that week of notice counts as service.
Suddenly the employer is facing a WRC claim they believed was impossible. This is exactly the scenario explored in the HRHQ piece on PILON pitfalls, and it is one we see play out repeatedly in our client work. The fix is contractual, but it needs to be in place before termination, not after. Our team at Purpletree reviews and drafts employment contracts to ensure PILON clauses are properly worded and enforceable.
A PILON clause must be explicit. Vague language about “the employer may terminate employment at any time” is not enough. The clause needs to specifically reserve the employer’s right to make a payment in lieu of notice and should define what that payment includes.
Without this, the default position is that the employer must give working notice. Paying money instead is technically a breach. We regularly find that contracts used by Irish SMEs either lack a PILON clause entirely or rely on template language that would not hold up to scrutiny. Contract audits through our HR audit service catch these gaps before they become expensive.
PILON is not simply “one week’s basic pay.” Depending on the contract wording, it may need to include benefits such as pension contributions, health insurance, car allowance, and any other regular payments the employee receives. Getting this figure wrong can lead to additional claims under the Payment of Wages Act 1991.
The calculation also depends on whether you are paying statutory notice or contractual notice, which may be significantly longer. Getting the figure right requires looking at the whole remuneration package, not just the salary line. This is one of those details that looks simple on paper but causes real problems when an employer works it out on the fly.
This is the most serious mistake, and the one with the highest WRC exposure. Some employers use PILON as a way to avoid the disciplinary process entirely. They decide an employee needs to go, pay them off, and assume the payment protects them from a claim.
It does not. The WRC examines whether the employer followed fair procedures, regardless of whether PILON was paid. An employee who receives full PILON can still bring a successful unfair dismissal claim if the reason for dismissal was unfair or the process was inadequate. Paying generously does not buy procedural compliance.
Our investigation and disciplinary service ensures the full process is completed properly before any termination decision is made. That sequencing matters. Once an employer has already handed over a PILON cheque, there is no going back to insert the steps that should have come first.
Termination is one of the highest-risk moments in the employment relationship. The intersection of notice periods, PILON clauses, service thresholds, and fair procedures creates a set of overlapping obligations that employers need to get right on the first attempt. There is no option to correct course after the fact.
Our employment advice team works with employers at every stage of a termination: reviewing contracts for enforceable PILON clauses, advising on correct notice calculations, and managing the disciplinary process where conduct or performance is the underlying issue. We also prepare employers for the possibility of a WRC claim and ensure the documentation will stand up to adjudication. Our WRC readiness checklist is a good starting point if you want to understand your current exposure.
If you are considering terminating an employee and PILON is part of your plan, talk to our team first. The cost of getting it right is a fraction of the cost of getting it wrong.
Only if your contract of employment contains a valid PILON clause that explicitly reserves this right. Without such a clause, paying in lieu of notice may be treated as a breach of contract, and the notice period may still count toward continuous service. This distinction has direct implications for unfair dismissal thresholds and WRC exposure.
It depends on whether you have a valid PILON clause. Where no clause exists and the employer simply pays the employee instead of giving working notice, the employment may be treated as continuing through the notice period. This can push employees past the 12-month threshold for unfair dismissal claims, a risk that catches many employers by surprise.
No. PILON is a payment for the notice period. It has no bearing on whether the dismissal itself was fair. The WRC will examine the reason for the dismissal and the procedures followed, regardless of the financial terms offered at termination. Employers who use PILON as a substitute for a proper disciplinary process remain fully exposed to unfair dismissal claims.
A properly drafted PILON clause should clearly state the employer’s right to make a payment in lieu of notice, define what elements of remuneration are included in the calculation, and confirm that exercising the clause ends the employment immediately. Generic or ambiguous wording is a common source of disputes. Purpletree’s contract review service ensures your PILON clauses are specific and enforceable.
This article is for general informational purposes only and does not constitute legal advice. Employment law is complex and fact-specific. For advice on your specific situation, contact the Purpletree HR team directly.
Our team of HR specialists advises Irish employers on exactly these issues every day. Get in touch for a confidential conversation.
Speak to Our Team
Register Now:
You will receive a confirmation email with a Zoom invitation in advance of the Breakfast Briefing.
