Process termination pay and PILON

To process an employee’s termination pay, refer to the employee’s Termination Agreement to see how payments should be processed. This will tell you which elements of pay are taxable.

Note: If a termination payment needs to be made ahead of payroll, you can either make the payment to the employee directly or contact Support. To ensure the employee isn’t paid again on pay day, see Ensure an employee isn’t automatically paid.

Before you begin

Termination payments are usually exempt from tax and National Insurance deductions up to the value of £30,000. Any termination payments in excess of £30,000 are given a tax-free allowance of £30,000, and the remaining value is subject to tax and employer’s National Insurance.

Payment in lieu of notice (PILON) are usually subject to tax and National Insurance.

Note: If you are making a termination payment to an employee after they have left your employment, see Process a Payment After Leaving.

How to process a tax-free termination payment

1. From the left side bar, navigate to Payrolls > relevant draft payroll.
2. Select the relevant employee.
3. Click Add Pay item > + Net addition.
4. Under the Type of addition drop down, select Termination award (non-taxable).
5. Enter the value and click Add net addition.

How to process a termination payment above £30,000

1. Process the £30,000 tax-free allowance following the steps above.
2. Once this is complete, click Add Pay item > + Gross addition.
3. Under the Type of addition drop down, select Termination award.
4. Enter the remaining value of the termination payment and click Add gross addition.

How to process PILON

1. From the left side bar, navigate to Payrolls > relevant draft payroll.
2. Select the relevant employee.
3. Click Add Pay item > + Gross addition.
4. Under the Type of addition drop down, select Notice pay.
5. Enter the value of PILON and click Add gross addition.