Commission During Notice Periods: What UK Employers Need to Know

A top rep resigns. They have three months' notice to work. Deals are sitting in the pipeline at various stages. Some will close before they leave, some will close after. And suddenly everyone — the rep, the manager, finance, HR — has a different opinion on what commission is owed.

This scenario plays out across UK sales teams every week, and it causes more friction than most leaders anticipate. The legal position is not always straightforward, employment contracts rarely cover every edge case, and the financial stakes are high enough that both sides dig in.

This guide covers what the law actually says, what happens to commission on garden leave, how PILON affects entitlement, and how to structure your commission plan to avoid disputes when someone heads for the exit.

The Legal Baseline: Employment Rights Act 1996

Under UK employment law, commission earned during a notice period is treated the same as commission earned at any other time. The Employment Rights Act 1996 protects an employee's right to receive pay — including commission — for work performed during their employment, and the notice period is still employment.

This is the critical point that some employers miss. When a rep is working their notice, they remain an employee with full contractual rights. If your commission plan says reps earn commission on deals they close, and they close a deal during their notice period, that commission is owed. Full stop.

The principle was reinforced in Commerzbank AG v Keen [2007] ICR 623, where the Court of Appeal held that an employee's entitlement to a discretionary bonus during the notice period depended on the precise contractual terms. The case established that employers cannot unilaterally remove pay entitlements simply because someone has resigned — unless the contract explicitly permits it.

Where it gets complicated is when the contract is silent or ambiguous. If your commission plan document does not address the notice period at all, courts will generally interpret the terms in favour of the employee. That is a strong incentive to get the wording right.

Commission on Deals Closed During Notice

The simplest scenario is a deal that closes while the rep is still actively working their notice. In this case, the rep is entitled to commission under the same terms as any other period. They are performing their duties, closing business, and generating revenue. There is no legal basis for withholding commission on these deals.

Some employers attempt to reduce commission rates during the notice period or exclude certain deal types. Unless this is explicitly stated in the employment contract or commission plan document, it is unlikely to hold up. ACAS guidance on final pay when someone leaves a job is clear that employees should receive all contractual pay during their notice period, which includes commission.

Worked Example

Sarah is an account executive on a three-month notice period. Her OTE is £80,000 (£50,000 base + £30,000 commission). She closes a £120,000 deal in month two of her notice. Under her commission plan, she earns 8% on all closed-won revenue.

Commission owed: £120,000 x 8% = £9,600

This is straightforward. The deal closed during employment, the plan terms apply, and the commission must be paid through PAYE in the normal way. There is no legal mechanism to defer or withhold this payment simply because Sarah has resigned. For more on how commission flows through payroll, see our guide on how commission is taxed in the UK.

Garden Leave and Commission Entitlement

Garden leave is where things start to diverge from intuition. When a rep is placed on garden leave, they are still employed — they are simply not required to attend the workplace or perform their duties. Their employment contract remains in force, and they continue to receive their base salary.

But what about commission?

The answer depends entirely on how your commission plan and garden leave clause interact. There are three common positions:

1. Commission continues to accrue on deals in the pipeline. This is the most employee-friendly position. If your plan awards commission based on deals attributed to the rep (regardless of who physically closes them), and you have no exclusion for garden leave, the rep may have a claim for commission on pipeline deals that close while they are on garden leave.

2. Commission is limited to deals the rep personally closes. If your plan explicitly requires the rep to have "personally closed" or "actively sold" the deal, placing someone on garden leave effectively prevents them from earning further commission. This is the most common approach and generally holds up — provided the wording is clear.

3. Commission is explicitly excluded during garden leave. Some contracts contain a specific clause stating that no commission accrues during garden leave. This is the cleanest approach but must be drafted carefully to avoid being seen as an unlawful deduction from wages under Section 13 of the Employment Rights Act 1996.

The key case here is SG & R Valuation Service v Boudrais [2008] EWHC 1340 (QB), which confirmed that garden leave clauses must be reasonable and cannot be used to deprive employees of benefits they would otherwise have earned. If your garden leave clause is too broadly drafted, it may be challenged.

Practical Recommendation

If you place reps on garden leave regularly, your commission plan should contain an explicit garden leave provision. Something like:

"Where the Company exercises its right to place the Employee on garden leave, no further commission shall accrue from the date garden leave commences, save for commission on deals where all substantive terms were agreed prior to that date."

This protects the employer while being fair to the rep on deals that were genuinely their work. If you are concerned about how this affects commission disputes, getting legal review of your specific wording is worthwhile.

PILON: Payment in Lieu of Notice

Payment in lieu of notice (PILON) adds another layer of complexity. When an employer pays a lump sum instead of requiring the employee to work their notice, the employment terminates immediately. This means the rep is no longer an employee and — in most cases — commission stops accruing.

However, PILON clauses vary. A well-drafted PILON clause will specify exactly what is included in the payment. Some include base salary only; others include an estimate of commission that would have been earned during the notice period. If your PILON clause is silent on commission, you may face a claim for commission that the rep would have earned had they worked their notice.

The tax treatment of PILON also matters. Since April 2018, all PILON payments are subject to Income Tax and National Insurance through PAYE, regardless of whether the contract contains a PILON clause (the "post-employment notice pay" rules under ITEPA 2003, Section 402D). Commission elements included in PILON follow the same treatment.

What PILON Should Cover

A robust PILON clause for a commission-earning role should address:

• Whether the PILON payment includes an element for commission
• How that commission element is calculated (e.g., average monthly commission over the preceding 12 months)
• Whether pipeline deals that close after the termination date generate any entitlement
• The tax treatment of the PILON payment

Without this specificity, you are relying on negotiation — and an outgoing rep with a strong pipeline has significant leverage.

Deals That Close After the Rep Leaves

This is the most contested area. A rep builds a pipeline over months, nurtures key relationships, gets a deal to proposal stage — and then leaves. Two weeks later, the deal closes. Who gets the commission?

Under most UK commission plans, the answer is: whoever the plan says. There is no automatic legal entitlement to post-termination commission unless the contract provides for it. The Employment Rights Act 1996 protects pay during employment; once employment ends, contractual terms govern entirely.

That said, courts have shown sympathy to employees in cases where commission was clearly earned through pre-termination efforts. In Tigana Ltd v Decoro Ltd [2003] EWHC 23 (QB), the court awarded post-termination commission to a commercial agent under the Commercial Agents Regulations 1993. While these regulations apply to agents rather than employees, the principle — that commission should reflect the work done to earn it — influences how employment tribunals approach similar disputes.

Best Practice: The Post-Termination Window

Many well-structured commission plans include a post-termination commission window. This typically works as follows:

• Deals at a defined stage (e.g., proposal sent, verbal agreement) on the leaving date are eligible
• If those deals close within 30, 60, or 90 days of termination, the departing rep receives commission
• The commission rate may be reduced (e.g., 50% of normal rate) to reflect that another rep may complete the sale
• Deals that do not close within the window generate no entitlement

This approach is fair to both sides. The rep gets credit for genuine pipeline work. The employer is not paying full commission on a deal that required significant effort from someone else to close.

For guidance on handling the financial mechanics of clawbacks on deals that subsequently fall through, see our article on commission clawback policies.

Common Disputes and How to Avoid Them

Having worked with numerous UK sales teams, we see the same disputes repeatedly when reps leave. Here are the most common, along with prevention strategies.

1. "I Brought That Deal In — I Should Get Paid"

The dispute: A rep leaves, a deal they sourced closes weeks later, and they expect full commission.

Prevention: Define a post-termination window in your commission plan. Specify eligible deal stages, the time window, and the commission rate. Put it in writing before anyone resigns.

2. "Garden Leave Shouldn't Affect My Commission"

The dispute: A rep on garden leave sees deals closing from their pipeline and claims entitlement.

Prevention: Include an explicit garden leave commission clause. Be specific about what happens to pipeline deals and whether any commission accrues during garden leave.

3. "My PILON Didn't Include Commission"

The dispute: A rep receives PILON covering base salary only and argues it should have included a commission component.

Prevention: Draft your PILON clause to explicitly address commission. Calculate the commission element using a fair formula (e.g., trailing 12-month average) and include it in the PILON payment.

4. "The New Rep Got My Commission"

The dispute: Pipeline deals are reassigned after a rep leaves, close under the new rep's name, and commission goes to the new rep while the departing rep gets nothing.

Prevention: Separate deal attribution from commission entitlement. Your plan should allow commission to be split between the departing and incoming rep based on contribution, with clear criteria for the split.

What Your Employment Contract Should Include

Based on the scenarios above, any employment contract for a commission-earning role in the UK should contain:

1. A clear commission plan reference — the contract should reference a separate commission plan document (which can be updated more easily than the contract itself)
2. Notice period commission terms — confirming that the standard commission plan applies during the notice period
3. Garden leave and commission — explicitly stating what happens to commission during garden leave
4. PILON and commission — defining whether PILON includes a commission element and how it is calculated
5. Post-termination commission — specifying any window during which commission remains payable after leaving
6. Pipeline deal handover — outlining how pipeline deals are reassigned and whether commission is split

ACAS recommends that commission terms are documented clearly and provided to employees in writing. Their guidance on paying your staff correctly emphasises that ambiguity in pay terms — including commission — is one of the most common sources of workplace disputes.

Building a Process That Survives Departures

Beyond the contract, practical process matters. When a commission-earning rep resigns, the following steps help prevent disputes:

Week one: Sit down with the rep and walk through their pipeline. Agree on deal stages and ownership. Document this in writing.

During notice: Continue calculating and paying commission normally. Do not change the rep's CRM access or deal attribution without good reason.

Final pay run: Calculate all outstanding commission, including any deals that closed during the notice period. Provide a detailed commission statement with the final payslip.

Post-termination: If you have a post-termination window, track eligible deals and pay commission on the agreed schedule. Communicate proactively — do not wait for the former rep to chase you.

The goal is to make the departure as clean as possible. A well-handled exit protects your employer brand, reduces the risk of legal claims, and sends a signal to your remaining reps that the commission process is fair — even when someone leaves. For more on maintaining trust through transparent commission processes, see our article on commission errors and trust.

Summary

Commission during notice periods is one of those areas where prevention is dramatically cheaper than cure. A clear employment contract, a well-drafted commission plan, and a consistent process for handling departures will eliminate the vast majority of disputes.

The legal position is actually quite straightforward: reps are entitled to commission earned during their employment, including the notice period. Everything beyond that — garden leave, PILON, post-termination deals — depends on your contractual terms. Get those right, and the rest follows.

If you are reviewing your commission plan for the first time or updating it after a difficult departure, focus on the specific scenarios outlined above. They cover 90% of the disputes we see in practice.

This article is for general informational purposes only and does not constitute legal advice. Employment law is complex and fact-specific. For advice on your particular circumstances, consult a qualified employment solicitor or contact ACAS on 0300 123 1100.