Garden leave vs PILON
One keeps them employed and away from a competitor; the other gets them off the payroll today. What actually differs.
On garden leave the employment continues - the person stays employed, stays paid, and stays bound by their contract, they just do not come in. With a PILON the employment ends immediately and the notice is paid as a lump sum. Both normally need an express clause in the contract. The practical difference is what you keep: garden leave keeps the person out of a competitor's office; a PILON gets them off the payroll.
What is garden leave?
The employee serves their notice at home. They remain employed on full pay and all contractual terms continue to apply - confidentiality, the duty of fidelity, restrictions on working elsewhere. They simply have no duties to perform.
It is used when someone has resigned for a competitor, has access to sensitive information or client relationships, or where having them in the building through a long notice period is unhelpful for everyone.
PILON vs garden leave: which should you use?
| Garden leave | Payment in lieu (PILON) | |
|---|---|---|
| Employment | continues to the end of notice | ends immediately |
| Restrictive covenants | contract still live; post-termination restrictions start later | restrictions start straight away |
| Can they join a competitor? | no - still your employee | only whatever the covenants prevent |
| Holiday | keeps accruing; can often be required to be taken | accrual stops; untaken leave paid out |
| Cost | full pay and benefits to the end of notice | a lump sum, taxed as earnings |
| Tax | ordinary earnings through payroll | caught by the PENP rules - taxed as earnings, no £30k shelter |
Do you need a clause?
For both, in practice yes.
- Garden leave without an express clause is risky: sending someone home when the contract does not allow it can itself be a breach, and a breach by the employer can undermine the very restrictive covenants you were trying to protect.
- PILON without a clause means ending the contract early is technically a breach, with the payment being damages rather than contractual pay. Since 2018 the tax outcome is much the same either way, thanks to PENP - but the contractual position is not.
Some roles also carry a stronger argument for a "right to work" - people whose skills decay without practice - which is another reason to have the clause rather than rely on goodwill.
What still applies during garden leave?
- Full pay and benefits, unless the contract genuinely says otherwise.
- Holiday accrual continues. Many contracts let the employer require accrued leave to be taken during garden leave, which is worth using - otherwise it is all paid out at the end.
- Contractual duties, including confidentiality and not working for anyone else.
- Reasonable contact. They are still employed, so occasional handover questions are fair - though the point of garden leave is distance.
How long can garden leave last?
No longer than the notice period, and courts have been unsympathetic to very long periods that look like restraint of trade by another name. A garden leave clause paired with restrictive covenants often includes a set-off, so time spent on garden leave counts against the covenant period - without it, the combined effect can be long enough that a court will not enforce it.
Related: the notice pay calculator for the statutory ladder, ex-gratia payments and the £30,000 rule for the settlement side, and the leaver holiday calculator for what has to be paid out.
Keep reading: All 66 HR guides · 30 free templates · 24 calculators
Notice periods on the record
CoDash tracks contractual notice, service dates and leave balances per person - so when an exit happens the figures are already there.