Q&As

How are the post-employment notice pay (PENP) provisions applied in circumstances where the employee is (a) on long-term sickness absence and has exhausted his entitlement to sick pay, or (b) has been dismissed summarily without notice?

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Published on LexisPSL on 29/04/2019

The following Employment Q&A provides comprehensive and up to date legal information covering:

  • How are the post-employment notice pay (PENP) provisions applied in circumstances where the employee is (a) on long-term sickness absence and has exhausted his entitlement to sick pay, or (b) has been dismissed summarily without notice?
  • Right to pay during notice period during long-term sickness absence
  • Summary dismissal
  • The PENP calculation

How are the post-employment notice pay (PENP) provisions applied in circumstances where the employee is (a) on long-term sickness absence and has exhausted his entitlement to sick pay, or (b) has been dismissed summarily without notice?

The amendments to sections 402 to 404 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003) (introduced through Finance (No 2) Act 2017), which became effective from 6 April 2018, have fundamentally changed the tax treatment of payments in lieu of notice (PILONs). In broad terms, the effect of the amendments is that all PILONs, whether paid pursuant to an (implied or express) contractual PILON provision or not, are fully taxable and subject to both employee and employer National Insurance contributions (NICs). The previous distinction between PILONs which were paid pursuant to an (express or implied) contractual PILON provision (which were treated as fully taxable) and those which were not paid pursuant to a contractual PILON provision (which were capable of benefiting from the £30,000 exemption and which were entirely free from NICs) no longer applies.

See generally, Practice Note: Taxation of payments in lieu of notice (PILONs) and post-employment notice pay (PENP).

Right to pay during notice period during long-term sickness absence

In determining an employee’s right to be paid during a notice period when they have exhausted their right to sick pay, consideration needs to be given to

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