The term pay in lieu of notice refers to the compensation an employee receives when they are separated from the company without proper notice. To be entitled to pay in lieu of notice, there must be an employment contract, company policy, or statutory requirement that outlines the wages owed the employee before termination of employment.
Also known as wages in lieu of notice, pay in lieu of notice (PILON) is compensation owed an employee when they are separated from their company and they are told they do not have to work through the notice period. To receive wages in lieu of notice, two conditions must exist:
- Layoff Compensation Agreement: the employee must have a layoff compensation agreement with their employer. The agreement can be part of an employment contract or it may be a benefit outlined in a company policy statement. In some jurisdictions, providing an employee with this notice may be a statutory requirement. The layoff notice agreement will specify how much time an employer must provide an employee before terminating employment. For example, the employer may have a policy that states employees will be given two weeks' notice before separation.
- Proper Notice: the employee must also be given proper notice before they are separated from the company. For reasons of security and employee morale, some companies may choose to immediately separate an employee that is scheduled to be laid off. If the employee is told they cannot work, or do not have to work, during the notice period then they are entitled to pay in lieu of notice.
Wages in lieu of notice is not to be confused with severance pay or accrued vacation, holiday, and incentive compensation owed an employee when employment is terminated. In addition to pay in lieu of notice, an employee may be owed a number of benefits when separated from their company.
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