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Is it ever legal to pay PILON below the National Minimum Wage? The answer might surprise you—let’s break it down.

This is particularly relevant to employers who pay their employees basic pay, subject to bonuses that push their total compensation above NMW. When an employee stops working for the company, if there is no PILON clause in place then it will essentially be a payment of damages for breach of contract. If there is a PILON clause in the employment contract, this will not be a not a payment for damages, but rather it is payment for debt owed to an employee under their employment contract. 

Locke v Candy and Candy Ltd EWCA Civ 1350 sets out that it is up to contracting parties to agree how a PILON will be calculated. As such, it may be calculated differently to how the employee’s renumeration would have been calculated if they had remained employed throughout their notice period.

Although there is no direct authority on this matter, it is highly likely that a PILON can be paid below NMW as it is not renumeration for hours worked, so the NMW provisions are not triggered.