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Understanding how notice periods and garden leave work in settlement agreements is crucial for both your financial position and your ability to start new employment.
What is Garden Leave?
Garden leave occurs when your employer:
- Tells you not to attend work during your notice period
- Continues to pay your full salary and benefits
- Prevents you from starting new employment
- Restricts access to company systems and contacts
Garden Leave in Settlement Agreements
Settlement agreements often include garden leave provisions. Key considerations include:
Payment Terms
Tax implications: Salary paid during garden leave is subject to normal tax and National Insurance. This differs from termination payments, where the first £30,000 is typically tax-free.
New Employment
Can you start a new job during garden leave? Usually no, unless:
- Your contract explicitly allows it
- Your employer gives written consent
- The settlement agreement provides for it
"Always negotiate the ability to start new employment during garden leave if you've already secured a role. Employers will often agree to this in settlement discussions."
Payment in Lieu of Notice (PILON)
Instead of garden leave, you might receive a lump sum payment in lieu of notice. Advantages include:
- Immediate freedom to start new employment
- Potential tax benefits (first £30,000 tax-free)
- Clean break from your employer
Calculating PILON
Ensure your PILON calculation includes:
- Basic salary
- Contractual bonuses
- Car allowances
- Commission
- Benefits value
- Pension contributions
Strategic Considerations
If you have a new job lined up: Push for PILON rather than garden leave, allowing you to start immediately.
If you need time to job hunt: Garden leave provides salary while you search, plus you remain an employee (better for mortgage applications, etc.).
Our team can advise on the optimal notice period structure for your specific circumstances.
