Ask the Expert:   Notice Periods, Probation Periods and Why Employers Need to Get the Calculations Right

When employers think about dismissing an employee, notice periods are often treated as a fairly straightforward administrative detail. In reality, they can become one of the most important, and misunderstood, parts of managing employment relationships correctly.

From statutory notice and contractual notice, through to probation periods and Payment in Lieu of Notice (PILON), the way notice is calculated can have a significant impact on legal risk, costs and even whether an employee gains unfair dismissal rights.

This topic is becoming increasingly important as proposed employment law reforms are expected to reduce qualifying service for unfair dismissal protection to six months from January. That means employers may have far less room for error when managing probation periods and making dismissal decisions.

In this month’s Ask the Expert, Angela Clay from HR4UK sits down with Izzy, an HR Consultant, to discuss why notice periods are no longer “just admin” and why getting them wrong could become an expensive mistake for employers.

Let’s start with the basics. Why do notice periods suddenly seem to be such a big topic?

I think for years many employers have viewed notice periods as something fairly routine. Someone resigns, or the business decides to terminate employment, and the notice period is simply the amount of time left before the employee leaves.

But it’s actually much more important than that.

Notice periods can affect somebody’s continuity of employment, their employment rights, the timing of dismissal, and potentially whether they qualify to bring certain claims. That becomes especially important with the proposed changes to unfair dismissal qualifying service expected next year.

A lot of employers are still working on the assumption that they have a large window of protection with newer employees. If the qualifying service period reduces to six months, businesses will need to become much more proactive in how they manage probation periods and dismissal timelines.

What looks like a simple termination date on paper may not actually be the legal termination date once notice is factored in.

Before we get into the complications, can you explain the difference between statutory notice and contractual notice?

Of course!  This is a good question because this is where confusion often starts.

Statutory notice is the minimum notice entitlement set out in law. Once an employee has worked continuously for one month, they’re entitled to at least one week’s statutory notice from their employer. After two years’ service, that increases by one week for every completed year worked, up to a maximum of twelve weeks.

Contractual notice is different because it’s whatever has been agreed within the employment contract.

So, for example, a contract may say an employee is entitled to one month’s notice, three months’ notice, or sometimes even longer for senior roles.

The important thing is that employers must apply whichever entitlement is greater.

What many employers don’t realise is that contractual notice can unintentionally extend employment beyond important legal thresholds. That’s where problems can arise.

One area that causes a lot of confusion for employers is whether statutory notice and contractual notice run together or separately.

Does statutory notice count towards continuous service, and is it added on top of contractual notice?

This is a really important question because it’s one of the areas employers misunderstand most often.In most situations, statutory notice and contractual notice run concurrently, meaning they run at the same time rather than one after the other.

So, for example, if an employee is entitled to one month’s contractual notice and also has a statutory entitlement to one week’s notice, the employer would not normally add them together to create five weeks’ notice. The employee would simply receive the greater entitlement, which in this case would be the one month contractual notice.

However, where this becomes more complicated is when we look at continuity of service and employment rights.

Under employment law, statutory notice can sometimes extend an employee’s effective date of termination when calculating qualifying service. This is particularly important when assessing eligibility for unfair dismissal rights.

In simple terms, the law can treat an employee as remaining employed during their statutory notice period, even if they do not physically work it.

That means employers cannot simply look at the date they issue a dismissal letter or hold a termination meeting. They need to consider whether statutory notice extends the employee’s service beyond an important legal threshold.

Can you give us an example of how that happens in practice?

Let’s imagine an employee started employment on 1 July and concerns arise during probation.The employer decides to terminate employment on 23 December, believing the employee has not yet reached six months’ service.

However, because the employee has more than one month’s service, they are entitled to at least one week’s statutory notice.That means the employee’s effective termination date may actually become 31 December.

If the proposed changes reducing unfair dismissal qualifying service to six months come into force from January, that additional week could potentially take the employee over the qualifying service threshold and give them unfair dismissal protection.

This is exactly why employers need to think carefully about timing, particularly towards the end of probation periods.

It’s also important to understand that contractual notice and statutory notice interact differently depending on the wording of the contract and the circumstances surrounding termination.

For example, if contractual notice is greater than statutory notice, the contractual notice will normally apply. If contractual notice is less than statutory notice, statutory minimum notice overrides the contract.

The key point for employers is this: notice is not simply about deciding somebody’s last working day. It can directly affect employment rights, legal protection and dismissal risk.

This is why employers cannot simply look at the date they hold the dismissal meeting or issue the letter. You have to calculate the legal termination date properly.

It’s also worth remembering that the effective date of termination is normally the date the employee actually becomes aware their employment has ended. So, if confirmation is sent by letter or email, there can sometimes be a delay between the employer making the decision and the employee receiving that communication. In certain cases, even a short delay can become significant when calculating continuity of service and employment rights.

So where do probation periods fit into all of this?

Probation periods are incredibly important, but they too are often misunderstood. Many employers assume probation automatically removes employment rights or gives complete protection from claims, but that simply isn’t the case. A probation period is really a structured assessment period. It gives employers an opportunity to review performance, conduct, attendance and suitability for the role before confirming ongoing employment.

Employees on probation still have important legal protections. They can still bring discrimination claims, whistleblowing claims and claims connected to health and safety concerns from day one. They also become entitled to statutory notice once they reach one month’s service.

Where probation periods can really help employers is through contractual flexibility.

Many employment contracts provide shorter notice periods during probation. For example, an employee may only receive one week’s notice during probation, increasing to one month once probation has been successfully completed. That shorter notice period can become extremely valuable when managing risk around qualifying service.

What are the biggest mistakes employers make with probation periods?

Honestly, the biggest issue is failing to actively manage them. We regularly see situations where probation review meetings never happen, concerns are never documented properly and managers simply allow probation periods to drift.

Then six or seven months later, performance concerns suddenly become much harder to manage because the employee has gained additional employment rights.

Probation periods should always be diarised and reviewed formally. Managers should hold regular conversations with employees, identify concerns early and confirm outcomes clearly in writing. A probation period should never simply “expire quietly” without any communication.

The businesses that usually manage this well are the ones that treat probation as an active management process rather than just a date written into the employment contract.

Can an employee be dismissed during probation?

In a word ‘Yes’.   Employers can dismiss an employee during their probation period if there are concerns about performance, conduct, attendance or overall suitability for the role. However, one of the biggest misconceptions is that probation periods somehow remove legal risk altogether, and that simply isn’t the case.

Employees on probation still have important statutory rights. They are protected from discrimination from day one of employment, can still raise whistleblowing concerns and, once they have completed one month’s service, are usually entitled to statutory notice.

That means employers should still follow a fair and reasonable process, even during probation. The process does not necessarily need to be overly formal, but employers should make sure concerns have been discussed with the employee, expectations have been made clear and the outcome is confirmed properly in writing.

Timing is also becoming increasingly important. With proposed changes expected to reduce unfair dismissal qualifying service to six months, employers will need to manage probation periods much more proactively. Allowing probation reviews to drift or delaying decisions could unintentionally result in employees gaining additional employment rights.

It’s also important for employers to remember that notice periods and effective termination dates can affect continuity of service, which is why probation dismissals should never be treated as simply an “easy exit” without careful consideration.

We also hear the term “PILON” quite a lot. What exactly does that mean?

PILON stands for Payment in Lieu of Notice.  This is a contractual term and not statutory. In simple terms, it means the employer decides to end employment immediately instead of requiring the employee to work their notice period.

So, if somebody is entitled to one month’s notice, the employer may decide to pay them for that month instead of having them continue working.

This is commonly used where relationships have broken down, where there are confidentiality concerns or where the business simply wants a clean and immediate exit. However, this is where employment contracts become extremely important.

Ideally, contracts should contain a clearly drafted PILON clause. Without one, terminating employment immediately can potentially amount to breach of contract. That can create additional legal risks, particularly for senior employees or where restrictive covenants are involved.

Does PILON affect continuity of service or termination dates?

Potentially, yes and this is another area employers often overlook. Many employers assume that if they pay somebody in lieu of notice, employment simply ends immediately and that’s the end of the matter.

But when assessing legal rights, employers may still need to consider statutory notice entitlement and the effective date of termination. This is particularly important where somebody is close to qualifying service for unfair dismissal protection.

Again, it comes back to properly calculating dates rather than making assumptions. A single week can genuinely make the difference between a relatively straightforward dismissal and a much more complex legal situation.

It sounds like employers are going to need to become much more careful moving forward.

Absolutely. The biggest risk I see right now is employers assuming that employees with shorter service represent low legal risk. Employment law simply doesn’t work that way anymore.

Many claims can already be brought from day one of employment, and if unfair dismissal qualifying service reduces to six months, employers will need to become much more disciplined in how they manage probation periods and documenting their discussion around any performance concerns, time their dismissals and calculate notice

The organisations that tend to protect themselves best are the ones that deal with issues early, train managers properly and avoid making rushed decisions.

Final question — what is the one thing employers should take away from this discussion?

Don’t underestimate how important notice calculations can become. A notice period that seems minor on paper can completely change someone’s legal rights and significantly increase the risk attached to a dismissal.

Employers don’t need to become employment lawyers overnight, but they do need to slow down, check contracts carefully, calculate dates properly and seek advice before making dismissal decisions where qualifying service may become an issue.

With employment law moving increasingly towards greater employee protection, businesses that proactively review their contracts and processes now will be in a far stronger position later.

What are your Key Takeaways for Employers

Notice periods are no longer something employers can afford to treat as a simple administrative exercise.

With employment law reforms on the horizon and qualifying service potentially reducing to six months, businesses should ensure they properly understand the difference between statutory notice and contractual notice, manage probation periods proactively and calculate termination dates accurately.

For employers, the safest approach is always to:

• review employment contracts carefully,
• ensure probation periods are actively managed,
• confirm decisions verbally and follow it up in writing,
• calculate notice correctly,
• and seek advice before making dismissal decisions where legal thresholds may become relevant.

In many cases, a single week can make a significant legal difference.