The ins and outs of notice periods can often be a confusing – but if you're running a small business, understanding the law on notice periods and how they work is absolutely essential. In this post, we take you through the complete Notice Period Guide – what they are, how to use them and everything in between.

What is a notice period?

A notice period is the minimum amount of time that an employee or employer needs to give each other before terminating their employment contract.

If an employee's contract of employment states, for example, that they have a four week notice period, they will need to give their employer four weeks notice before their last day. If they left the business before that date, it would likely constitute a breach of contract.

The same is also true in reverse – an employer can't force a member of staff to leave the business before their minimum notice period is up (unless they choose to pay them in lieu of notice – more on that later). If they did, it would be a breach of contract and they may find themselves at an employment tribunal.

Employees are entitled to take their annual leave as normal during their notice period, and also entitled to their standard company benefits such as sick leave or sick pay until their employment ends. In that time, they continue to earn their normal pay as usual up until their last day.

How long should a notice period be?

Exactly how long a notice period needs to be is going to depend on a few different factors. For example, there are actually two different types of notice period recognised by UK employment law: statutory notice periods and contractual notice periods.

Statutory notice periods

As an employer in the UK, there is a statutory minimum period of notice that you are obliged to offer. This is the legal minimum amount of notice that you have to offer  – you can offer more, but you can never offer less.

Here are the UK's statutory minimum notice periods:

• One week’s notice for any period of continuous employment lasting between one month and two years
• One week of notice for each additional year of continuous employment (between two and 12 years)
• 12 weeks’ notice if employed continuously for 12 years or more

Contractual notice periods

The minimum notice periods set out above are exactly that - the bare legal minimum.

The other kind is contractual notice periods – the notice periods as set out in the employee's contract of employment.

Many companies choose to offer their staff longer minimum periods of notice – largely because having just one week's notice can be really unsettling. It's a very short amount of time and almost certainly not enough to find a new job.

A company that offers only the legal minimum on notice periods shouldn't be surprised if their staff look to move somewhere that offers them a little more stability.

It's worth noting that there's nothing in the law stopping a company from asking their staff to give them a longer period of notice than it is required to give the employee in return, as long as it is clearly set out in their contract of employment.

However, while it might be legal this probably isn't particularly fair way of running a business. It hardly inspires trust between the company and employee – in fact, it sends out a pretty damaging message. Companies should think carefully before going down this route.

Notice periods in an employee's probationary period

The length of an employee's notice period will usually be much shorter when an employee is still in their probation period. In cases like this, one week is the standard length of time.

Notice periods and gross misconduct

If you believe an employee is guilty of gross misconduct, then you are entitled to dismiss them without notice. Only very serious acts could constitute gross misconduct – things like theft, violence, or gross negligence in their role. However, dismissing someone for gross misconduct is not something to be taken lightly and you need to make sure you're on firm ground legally – otherwise, your company could be accused of unfair dismissal. For help with any queries around gross misconduct, get in touch with our HR Advice team.

Payment in lieu of notice (or pilon)

If your company has decided to terminate a member of staff's employment contract, you are obliged to offer them their contractual or statutory notice period. However, you could also offer to pay them in lieu of notice (or pilon). This means that you pay them the full sum of wages owed to them over the course of their notice period, but don't expect them to come into work.

What they do instead is up to the employer and employee to decide – perhaps they get on with applying for new jobs elsewhere or perhaps they just stay out of the office until their notice period runs down. This is commonly known as 'garden leave'.

What if the employee hasn't used their full holiday entitlement?

When your employee leaves the business, you'll need to prorate any unused holiday entitlement and make sure that calculation is reflected in their final salary payment.

So – how long should I set as my employee's contractual notice period?

So, we've spoken about the different factors at play when setting an employee's notice period. But how long is right for you and your small business?

Here at Charlie, we've settled on a one month notice period for full-time, contracted employees. In most situations, this gives you ample time to hire a replacement, complete the handover and adjust as a team – while still remaining respectful of the employees desire to move on and start their new job. Remember, longer notice periods can make it unnecessarily hard for your team to find new work. Many employers, for example, would struggle to hold a role open for a full three months.

However, there are some situations where you should look at using a slightly longer notice period. Here's some factors you should take into account.

1) Seniority

Employees with the most responsibility will typically have the most to hand-over and the biggest risk attached to a ‘changing of the guard’. On top of this, losing a team leader or C-suite figure can be jarring for the rest of the team, so the longer there is for people to get used to the idea of the change before it happens, the better.

2) Length of service

Just by virtue of experience, employees who have been working in your company for many years will have acquired knowledge and know-how beyond their role and level of responsibility and will, therefore, have more to handover to the rest of their team/or replacements.

3)  Specialisation

Some roles are so vital for your organisation that having too short a notice period risks critical functions going unstaffed. For instance, if you are working in the fin-tech space, then losing your Head of Technology without having enough time to find a suitable replacement is an incredibly dangerous scenario.

Key things to think about when an employee hands in their notice:

• Make the handover process as positive as possible to encourage the departing employee to do it in good spirits.
• Think about hiring a replacement straight away and get the departing employee’s opinion on what they think you should look for.
• Ensure all the knowledge that was previously just in their head is kept in the company.
• Schedule and then conduct a thorough exit interview.
• Collect all the logins that other employees might not have access to

But of course, if you're not sure about how much your notice periods should be, you can always ask for advice from a professional.

At Charlie, our advisors can be on hand to give you tailored advice for you and your business so you can make the right decisions with confidence.