What is garden leave?

Garden leave is a period where an employee is instructed not to work during their notice period but remains employed by the organisation. Typically:

• The employee continues to receive their normal pay and benefits.
• The employment contract remains in force.
• The employee must usually be available to the employer if required.
• The employee is often restricted from working for a competitor or starting a new role until the garden leave ends.

In payroll terms, garden leave is generally treated as normal employment with no duties being performed, rather than a separate type of payment.

Payroll treatment (general)

During garden leave, you would normally:

• Pay the employee’s contractual salary (or as agreed in the contract/settlement).
• Operate PAYE tax and National Insurance contributions (NIC) as usual.
• Continue pension contributions and other benefits (e.g. BIKs, company car, medical insurance) in line with the employment contract and any agreement reached.
• Allow holiday to accrue as normal, unless there is a legally valid agreement to the contrary.

By contrast, if you make a payment in lieu of notice (PILON) and the employment ends immediately:

• The employee’s employment terminates at once.
• You pay a lump sum instead of the notice period.
• The PAYE/NIC treatment follows the current rules for PILON and termination payments (with any exemptions only where they genuinely apply under legislation and HMRC guidance).

Processing garden leave in BrightPay

The steps below apply where the notice is worked but spent on garden leave and the employee remains employed until the termination date.

1. Keep the employee active

• Do not mark the employee as a leaver while garden leave is ongoing.
• Continue to include them in each pay period as normal.

2. Pay normal salary

• Run payroll as usual, using the employee’s normal gross pay, with PAYE and NIC calculated in the standard way.
• If the garden leave arrangement involves a different pay amount (e.g. reduced contractual pay):
  • Update the agreed basic pay in Employee > Pay; or
  • Adjust the gross pay directly in the relevant payslip for each period.

3. Benefits and pension

• Leave the existing pension scheme and contribution settings in place, unless you have agreed and documented a different arrangement.
• Keep other benefits (e.g. benefit-in-kind items) active if they continue during garden leave.
• BrightPay will calculate contributions and any benefit-related deductions automatically based on the pay and settings you enter.

4. RTI submissions

• Submit FPS for each pay date as normal.
• There is no special RTI indicator for garden leave; it is reported as standard pay with the usual tax and NIC.

5. When garden leave ends

On the actual termination date:

1. Go to Employee > Options and mark the employee as a leaver, entering:
   • The correct last working day/termination date.
2. Process the final pay, including:
   • Any outstanding holiday pay (if applicable).
   • Any agreed deductions or final adjustments.
3. BrightPay will include the leaver details in the final FPS automatically.

Important disclaimer

The information above describes the general treatment of garden leave in BrightPay and typical payroll practice. However:

• The correct approach can depend on the specific employment contract, settlement terms, and current HMRC guidance.
• There may be other scenarios (for example, complex termination packages, PILON structures, or benefits that change during garden leave) where the tax and NIC treatment differs.

BrightPay provides payroll software and cannot advise on all possible legal or tax variations. Before deciding how to treat garden leave, PILON, or any termination-related payments, you should:

• Review the employee’s contract and settlement agreement, and
• Seek advice directly from HMRC or a suitably qualified professional (e.g. tax adviser or employment lawyer) to confirm the correct treatment in your specific circumstances.