You’ve probably heard the phrase “wages in lieu of notice” tossed around in HR meetings or on exit interviews, but what does it really mean? And more importantly—why does it matter?
In the world of business, how you treat people on their way out says just as much about your leadership as how you bring them in. Chris Mefford here—let’s dive deep into this crucial aspect of employee offboarding. Because if we want to lead with integrity and clarity, we’ve got to get the details right.
Wages in lieu of notice (also known as PILON, or Pay in Lieu of Notice) refer to the payment an employer makes to an employee when terminating them without requiring them to work through their notice period.
In plain terms: it’s like saying, “We’re ending this now, but we’re still going to pay you as if you had worked through your notice period.”
This is different from severance pay or redundancy pay, though they often get lumped together.
From a leadership perspective, how we handle employee departures affects our reputation, future hiring, and internal morale. But there are also practical reasons this matters:
Search engines love clarity—and so do employees. Using keywords like “termination notice,” “employment contract obligations,” and “employee rights on dismissal” helps folks find what they need fast. More importantly, it helps us do business right.
Employment contracts often include termination clauses that specify how much notice is required—or how that notice can be waived. Here’s the kicker: if no clause exists, local employment laws usually step in.
Whether you’re in the U.S., Canada, the UK, or Australia—this concept exists, though it’s handled differently depending on the region.
Let’s be honest. Sometimes, keeping an outgoing employee around during their notice period doesn’t make sense.
Top reasons include:
Instead of letting things get messy, employers opt to pay the remaining notice period up front. It’s cleaner, faster, and often more respectful—especially if done with transparency and empathy.
There’s no one-size-fits-all. But here’s a basic breakdown:
Formula example:
If an employee earns $4,000 per month and has a 2-week notice period, they’d receive:
$4,000 / 30 × 14 = $1,867 (rounded)
Of course, always consult local law and your HR team to ensure compliance.
In most jurisdictions, wages in lieu of notice are considered taxable income. Employers must still:
Skipping this step is not just risky—it’s unlawful. Mistakes here can lead to audits, penalties, and even lawsuits.
Leadership means knowing the law, but also understanding the human cost of getting it wrong.
A great leader doesn’t just follow the rules—they use them to build a culture of trust.
Best practices:
It’s not about checking a box—it’s about treating people like people.
Don’t let these issues trip you up:
Let’s walk through two quick case studies:
A SaaS company had to lay off 20% of staff due to funding issues. Instead of having them stick around awkwardly, they offered 4 weeks' pay in lieu of notice with outplacement support. Result? Departing employees felt respected—and many praised the company publicly on LinkedIn.
A manufacturing firm in Ontario dismissed a team leader without working notice or PILON. The employee sued—and won over $40,000 in damages. The problem? No contract clause. A simple one-page addendum could have prevented this.
Severance is compensation for job loss, usually based on tenure. Wages in lieu of notice are payment instead of having the employee work out their notice period.
Yes, in most countries it's treated as regular income and is subject to withholding.
In some regions, yes—but it’s rare. If the employment contract allows it or local law supports it, employers may proceed.
If payment is made in lieu of notice, some benefits may end immediately unless otherwise stated.
Absolutely. Always put it in writing to protect both parties and avoid legal ambiguity.
Wages in lieu of notice might seem like a small piece of the offboarding puzzle—but they carry big consequences. Whether you're leading a team or managing operations, how you handle this moment reflects your values, foresight, and respect for the people who helped build your business.
And remember—leadership isn’t just about what happens during employment. It’s how you say goodbye that really defines you.
If you'd like help crafting compliant employment contracts, managing terminations, or building a healthier offboarding culture, let’s talk. Because doing right by people is always good business.
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