A complete guide to notice periods

The subject of notice periods can be a thorny one for the uninitiated, especially if you are a manager or an owner of a small business. There has been talk amongst UK businesses that there are too many variations of notice periods, with differences occurring depending on both contract type and role level.

However, a notice period benchmarking survey conducted by Xpert HR in 2016 found that the overwhelming majority of employers were happy with the way that notice periods worked within their organisation. As would perhaps be expected, the length of notice periods normally increases with levels of seniority – more than a third of businesses polled (37.8%) set director notice periods at six months. Three months was the average stated for managers (58.6 %), and for manual and non-manual workers, the majority polled set a standard notice period as one month (74.9%).

What is a notice period?

The term notice period commonly refers to the period of notice that an employer or employee must provide in order to terminate their current contract of employment. The period of warning that an employer or employee must provide is normally included within a standard business employment contract.

Are there legal minimum notice periods?

There are two common types of notice period that are recognised by UK legislation – statutory and contractual. As an employer, you should be aware that you are legally required to provide your employees with a statutory minimum notice period. This will vary depending on the employee’s length of service, but will be one of the following:

• One week’s notice if they have been employed continuously between one month and two years
• One week’ notice for each year they have been employed continuously between two and 12 years
• 12 weeks’ notice if employed continuously for 12 years or more

However, you may want to provide your employees with a longer contractual period of notice. You have the freedom to set this yourself, as long as the time period is longer than what is required contractually. You must ensure that you include your notice terms and conditions clearly within your wider contract of employment, as otherwise notice periods will revert automatically to the statutory minimum.

There are no defined guidelines as to what enhanced notice periods are suitable, but as general rule it would be wise to consider the seniority of the employee’s role, and the skillset that goes alongside it. Many businesses tend to use one month for most employees, up to three months for managers, and as much as six months for directors.

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Does contract type affect notice periods?

Notice periods are normally slightly different for employees or workers on fixed term contracts. In this instance, both yourself and the employee in question should already be aware when the period of employment is due to come to an end, and therefore no formal period of notice need be given on either side.

This normally applies to anyone covering maternity, paternity or SPL leave for a fixed period of time, seasonal workers employed for a set number of months, or those who work from contract to contract across different organisations.

It is possible to end a fixed term contract on either side, but either yourself or your employee must ensure that the correct period of notice, either contractual or statutory, must be given. If no notice period is stipulated on the contract, then one week is usually required for early termination.

How should an employee resign?

If an employee decides to resign from their position, it is normally best to stipulate that they provide their resignation in writing. This will ensure that there is no confusion as to when their resignation was tendered, and what their resulting leave date will be.

The written notice, sent by either email or letter, should detail when they expect their last day at work to be, and how much notice they are providing you with. Most employees will also provide you with a brief reason as to why they have decided to resign, but this does not have to be included.

They can also decide to provide you with more notice than is stipulated within their contract – i.e., they may provide you with six weeks’ notice as opposed to the four required. Most employees normally do this out of goodwill if possible, as they understand that it can take time to advertise a job vacancy and find a suitable replacement.

If your employee does provide more notice than is required, you cannot force them to leave earlier than the date that they have provided. If you do, this will count as a firing, and there is a possibility that they will claim for unfair dismissal.

What if an employee goes to a competitor?

In this instance, you may be concerned about crucial data and customer details departing with the employee in question. Most businesses would employ the concept of ‘garden leave’ for this scenario, but you must ensure that this is clearly set out in the employee’s initial contract of employment. Companies tend to use this for sales roles, or for more senior positions such as those acting as manager or director.

Garden leave is a clause within a contract that stipulates an employee must not actively work during their notice period, but that they also cannot start their new role until the end of the notice period. You will need to ensure that the employee in question still receives their normal rate of pay and benefits during this period, and you can also ask them to remain on ‘standby’ to work if necessary.

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Can an employee reduce their notice period?

Legally, an employee could ask to have their notice period reduced. You are under no obligation to agree to this, but it would be worth having a discussion as to the reasoning behind their request.

Often, this requested due to their new role asking if they can start any quicker than the amount of notice that they contractually obliged to provide you with. If they are keen to finish all crucial tasks and leave before their nominated date, it could be worth keeping in mind that you will save money on their salary payment for this period.

However, if you know that their role will be difficult to fill, or that you will need to employ the services of an agency to either recruit for you or fill the role with a temporary staff member, then you are well within your rights to refuse the request.

Whenever they leave, you must pay them in full up until their last working day.

How does notice payment work?

During the notice period, you are legally required to pay your employee their normal pay and benefits, such as pension contributions, free meals and uniform, as set out within their employment contract. This applies regardless of whether they are on sick leave, holiday, temporarily laid off, on maternity, paternity or adoption leave, or available to work, even if you do not have any tasks for them to do.

Their notice period will usually start the day after the day the employee has handed in their notice. For example, if a week’s notice is given on a Thursday, then the start of the notice period will be Friday, and would then expire the following Friday.

Can an employee be paid in lieu of notice?

Payment in lieu of notice usually occurs if you require your employee to stop working as soon as they hand in their notice – e.g. if they deal with a lot of sensitive information, work in a sales team or are leaving to work for a competitor.

If this is the case, pay in lieu of notice will usually provide your employee with a single payment, equal to the amount of money that you would have received if you had worked your full notice period. It should also include any work benefits that would normally be applicable, such as pension contributions. Money should also be added to make up for any work perks that may have been applicable, such as having a company car for personal use.

Can holiday be taken during a notice period?

Your employee can request to take any unused annual leave during their notice period, but it is at your discretion if you decide that they can take it. If you do decide to let them take holiday, you must ensure that they are paid their normal wage during this period. If business need means that they cannot be spared, then you are entitled to refuse the request.

If an employee leaves with holiday still owed to them, they are entitled to be paid for the balance owing. This applies up to the first 28 days of their holiday entitlement – known as statutory entitlement. If more than 28 days per year is provided, including bank holidays, this is known as contractual holiday.

Depending on the point of the year that the employee leaves, and the percentage of untaken holiday that is left owing to them, most businesses normally pay the balance of any contractual holiday days left. This should be stipulated within your standard employment contract.

What about sick leave?

If an employee needs to take sick leave during their notice period, they are entitled to, and they should also be paid at whatever your normal rate of sick pay is for the duration that they are absent. This includes an entitlement to at least one week’s full pay during the notice period. If you provide enhanced sick pay, this should be paid at the normal rate.

For example, if someone gives four weeks’ notice, and is sick for two weeks of that period, they could be paid one week at full pay, one week at statutory sick pay (if that is your policy), and the remaining two weeks at full pay.

Most employers offer some kind of enhanced sick pay, even if for a short period of time, so ensure that you know what rules apply in advance of this situation.

What is dismissal without notice?

This is normally known as summary dismissal, and refers to an instant dismissal – normally instigated when an employee has committed an act or breached the terms of their contract so severely that it amounts to gross misconduct. Gross misconduct usually applies to acts such as theft, violence, bullying, harassment, serious health and safety breaches or gross negligence.

In a situation such as this, you reserve the right as an employer to terminate their employment without needing to provide notice, or to be paid in lieu of their contractual notice period.

What if an employee changes their mind about resigning?

If an employee resigns during a heated situation, or during a stressful period at work, they may decide to try and retract their notice.

There is no legal requirement for you to accept the withdrawal, and you are within your rights to insist on keeping the original resignation notice in place. However, it may be worth considering any such request, and to allow your employee to retract the resignation.

Exercise caution if your employee used words or actions that are ambiguous, or if they resigned in the heat of the moment – possibly if you suspect they have no genuine desire to leave their job. If the resignation was in the heat of the moment and there are special circumstances, it might be worth allowing a cooling-off period to ascertain if any other matters arise. A reasonable cooling-off period may only be a day or two, but this will depend upon the facts of the individual case.

If you fail to allow a cooling-off period and immediately accept the resignation, then you should keep in mind that a tribunal may conclude that the employee had not in fact resigned, but was dismissed.

If a recent employee has decided to leave for pastures new, you’ll need to replace them with the best candidate. At IRIS we're proud to have a variety of powerful HR management software for all businesses. Larger businesses should take a look at our applicant tracking system for IRIS Cascade HRi which will help you manage potential replacements and ensure the best talent is acquired. Smaller businesses can use the power of IRIS HR Professional.