UK Notice Period Rules (2026/27): Statutory vs Contractual + Tax Treatment
UK notice period rules 2026/27: Section 86 ERA 1996 statutory minimums (1 week per year of service, capped 12 weeks from employer), contractual notice variations, garden leave, payment in lieu of notice (PILON) taxation under Section 402D ITEPA 2003, gross misconduct exception, and what happens to bonuses, holiday accrual, share vesting during notice.
Comprehensive guide to UK notice period rules for 2026/27: Section 86 ERA 1996 statutory minimums, contractual variations, garden leave mechanics + tax, PILON taxation under Section 402D ITEPA 2003, gross misconduct exceptions, what happens to bonuses + holiday + share vesting during notice, and the difference between resignation, dismissal, and constructive dismissal notice rules.
Statutory minimum notice (Section 86 ERA 1996)
The statutory floor that contractual notice cannot fall below. Notice is asymmetric by statute - the employer\'s notice obligation rises with service; the employee\'s is fixed at 1 week.
| Continuous service | Employer must give | Employee must give |
|---|---|---|
| Less than 1 month | No statutory notice | No statutory notice |
| 1 month - less than 2 years | 1 week | 1 week |
| 2 years - 12 years | 1 week per year of service | 1 week (no upward escalation) |
| 12 years + | 12 weeks (capped) | 1 week |
Most contractual notice exceeds statutory - typical professional roles: 1-3 months from both sides. The statutory floor matters most when (a) contractual notice is silent, (b) the employee is short-served and the contract gives less than statutory, (c) the contract is found void.
Garden leave vs PILON vs worked notice
Three ways the employer can handle your notice period after dismissal:
- Worked notice - you work the period normally. Full pay + benefits + accrued holiday + bonus eligibility. Restrictive covenants run from last working day.
- Garden leave - you remain employed but cannot work. Full pay + benefits + holiday accrual + pension. Cannot work for new employer. Restrictive covenants typically run from end of garden leave. Tax: full PAYE.
- PILON - employment ends immediately; cash equivalent of unworked notice paid out. No more benefits accrual, no holiday accrual, no bonus crystallisation in the unworked period. Restrictive covenants run from termination date (not notice expiry). Tax: fully taxable under Section 402D + PENP formula.
Worked notice is usually best for the employee unless joining a new employer immediately. Garden leave is the safest for employer when joining a competitor. PILON is fastest but loses bonus rights + accrued holiday for the unworked period.
Resignation tactics: timing your departure
- Resignation letter format - state notice given, last day calculated, brief reason (optional, no resignation reason is required). Don\'t burn bridges in the letter - it stays on file.
- Timing for bonus - check bonus rules. If "must be employed on payment date" and bonus pays in March, resign AFTER receiving it. PILON during the bonus-payment period can forfeit the bonus.
- Timing for restrictive covenants - longer notice / garden leave usually doesn\'t reduce the covenant period (which runs from departure). Negotiate covenant reduction during exit if leverage permits.
- Timing for share vesting - check next vesting date. Leaving 1 day before a cliff vest = forfeit. Negotiate "accelerated vesting" or stay until vest. RSUs with quarterly vesting: time exit to a vest date.
- Withdrawing resignation - the employer can refuse to accept withdrawal once notice has been served and accepted. Don\'t resign in anger without a backup plan.
Related guides
- UK Statutory Redundancy Pay 2026/27 - PILON + £30k exemption detail.
- UK Employment Contract Red Flags 2026/27 - notice asymmetry + restrictive covenants.
- UK Probation Period Rights 2026/27 - notice during probation.
- UK bonus tax optimisation 2026/27 - bonus during notice + clawback.
- UK Tax on RSU + Stock Options 2026/27 - share vesting on departure.
Frequently asked questions
What's the difference between statutory and contractual notice?
Statutory notice (Section 86 ERA 1996) is the legal minimum. Contractual notice is whatever the contract specifies, which can be MORE than statutory but never LESS. If contractual notice is silent or shorter than statutory, statutory applies. Most professional contracts give 1-3 months notice from both sides; statutory at 5 years of service would only be 5 weeks from the employer + 1 week from the employee. The contract takes precedence as long as it meets the statutory floor.
Can I leave without giving notice?
Technically yes, but the employer can sue for damages caused by the breach (loss of profit during the unfilled period, cost of urgent recruitment, business disruption). In practice this is rare for most roles - the employer's damages are hard to quantify and litigation cost outweighs recovery. For senior roles, roles with client portfolios, or roles during a critical project, the employer may seek an injunction (court order to honour notice or to enforce restrictive covenants). Walking out also forfeits any reference goodwill + can trigger clawback of sign-on or retention bonuses.
What is garden leave and how does it work?
Garden leave means you remain employed (with full pay + benefits) during your notice period but are forbidden from working - including for the new employer. The employer keeps you "tied" to prevent you joining a competitor immediately. Garden leave only works if the contract explicitly permits it. Tax: garden leave pay is fully taxable as employment earnings via PAYE - no £30k exemption. Practical impact: you accrue holiday, pension, service for redundancy purposes, but cannot do paid work elsewhere. Some employers offer "garden leave with consent to work elsewhere" if they have no competitor concern - request this in writing.
How is PILON taxed?
Payment In Lieu Of Notice (PILON) is the cash equivalent of your notice period paid out instead of working the notice. Since April 2018 (Finance (No.2) Act 2017, Section 402D ITEPA 2003), all PILON is fully taxable as employment earnings via PAYE - Income Tax + employee NI + employer NI. The "PENP" (Post-Employment Notice Pay) formula calculates the taxable amount: PENP = (basic pay last 4 weeks before notice) × (unworked notice days / days in last 4 weeks). The closure of the previous loophole means PILON cannot fall within the £30k tax-free redundancy exemption. See our UK redundancy pay guide.
What happens to my bonus if I leave during the bonus year?
Depends entirely on the bonus rules + your last working day. Common scenarios: (1) "Must be employed on payment date" - bonus forfeited if you leave before. (2) "Must be employed on financial year end" - bonus crystallises at year-end even if you leave during the payment month. (3) Pro-rated - bonus accrues by month worked, payable on departure. (4) Discretionary - employer chooses. Garden leave generally keeps you "employed" for bonus eligibility purposes if you're still on the payroll. PILON often does NOT count as "employed" - so taking PILON instead of working notice can lose you a bonus crystallising in the missed period. Negotiate bonus payment terms separately when leaving.
Can I be dismissed without notice?
Yes, for "gross misconduct" - serious breach of contract or conduct fundamentally incompatible with employment (theft, violence, gross insubordination, serious dishonesty, gross negligence). Summary dismissal (no notice, no PILON) requires the gross-misconduct standard to be met genuinely - employers must follow a fair process even for gross misconduct (investigation, hearing, appeal under the ACAS Code). If unfair dismissal can be claimed (2+ years service currently), summary dismissal can be challenged. Wrongful dismissal (claiming the breach didn't meet gross misconduct standard) is available regardless of service length and gives damages equal to lost notice pay.
Does notice run during sickness or holiday?
Notice runs concurrent with sickness, holiday, parental leave, and any other authorised absence. The employee is entitled to be PAID during notice at the contractual / SSP / holiday rate, depending on type of leave. Some contracts specify "notice does not start until return to work" - this is unusual but legal if contractually agreed. Bank holidays during notice are paid (whether worked or not) at normal rate. Annual leave during notice is paid at full rate. Sickness during notice: full pay if occupational sick pay scheme covers, otherwise Statutory Sick Pay (SSP).
Can my employer extend my notice period mid-notice?
Only with your consent. Unilateral extension is a breach of contract. If the employer asks for more time and offers something in return (extra month's pay, retention bonus, completion of specific project), you can agree on terms - get this in writing as a contractual variation. Common scenario: the employer wants you to stay 2 extra weeks to hand over a project; reasonable negotiation involves them paying 2 extra weeks salary + protecting your bonus / restrictive covenant start date. Always seek to anchor restrictive covenant duration from the LAST working day, not from notice serve date - the difference matters for non-compete clauses.