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‘The Post Employment Notice Pay’ (PENP) is the amount of a ‘relevant termination award’ received by an employee in respect of any unworked notice period and which is subject to income tax and employee and employer’s National Insurance contributions.
Statutory redundancy payments are excluded from this.
PENP is often confused with PILON (payment in lieu of notice). PILON is a contractual provision, whereby an employer can make a payment to the employee, instead of them working their notice period. The fact that it is a contract provision means that if an employee does not have a PILON clause in their contract, it will not be relevant to them.
PENP however, is a statutory calculation which ensures that termination payments are properly taxed, which can be relevant even where there is no contractual provision for PILON. PENP provision mean that PILON can no longer be paid without tax implications.
Worked Example:
- Employee: Jim
- Notice Period: 4 weeks
- Basic Pay: £2,000 per month (paid in equal monthly instalments)
- Termination Payment: £10,000 total, including £2,000 statutory redundancy payment.
- Jim leaves immediately without working his notice.
Calculation:
- Identify the relevant termination award:
This is the total termination payment minus any statutory redundancy payment that benefits from the £30,000 tax exemption. In this case, the relevant termination award is £8,000 (£10,000 – £2,000).
- Calculate PENP:
Use the formula: (Basic Pay x Number of Days in Notice Period) / Number of Days in Last Pay Period.
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- Basic Pay: £2,000 (monthly)
-
- Number of Days in Notice Period: 28 (4 weeks x 7 days)
-
- Number of Days in Last Pay Period: 30.42 (used when the notice period is not a whole number of months).
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- Therefore, PENP = (£2,000 x 28) / 30.42 = £1840.89
- Determine the taxable portion:
In this case, the PENP amount (£1,840.89) is the portion of the termination payment that is taxable, including income tax and NICs. The remaining £10,159.11 of the relevant termination award benefits from the £30,000 tax and NIC exemption.
If you’re facing a dispute, our aim is to resolve your situation as quickly, painlessly, and inexpensively as possible. Our team of experts can offer the advice and support you need. Please call 02392 820 747.
