Unfair Dismissal Compensation: How Much Can You Claim?

Key Points

How unfair dismissal compensation is calculated

If a tribunal finds that you were unfairly dismissed, it can award compensation made up of two separate elements: a basic award and a compensatory award. Each is calculated differently and serves a different purpose.

The basic award is a fixed, formulaic payment based on your age, length of service and weekly pay. The compensatory award is a discretionary payment designed to compensate you for the actual financial losses caused by the dismissal. Together, they form your total unfair dismissal compensation.

The basic award

The basic award uses the same formula as statutory redundancy pay. Three factors determine the amount: your age at dismissal, your complete years of continuous service (capped at 20 years), and your gross weekly pay (capped at £751 for dismissals on or after 6 April 2025).

The formula works backwards from your dismissal date:

If your service spans multiple age bands, different multipliers apply to the years worked in each band. For example, if you worked from age 38 to 48 (10 years), the first two years (ages 38-40) attract 1 week’s pay each, while the remaining eight years (ages 41-48) attract 1.5 weeks’ pay each.

Only complete years of continuous service count. Nine years and eleven months counts as nine years. The maximum service used in the calculation is 20 years, regardless of how long you actually worked for the employer.

Current basic award limits (2026/27)

Worked example: basic award

Sarah is 45 years old and has been employed for 12 complete years. Her gross weekly pay is £850 (which exceeds the cap, so £751 is used). Working backwards from her dismissal date:

Ages 41-45 (4 years): 4 × 1.5 × £751 = £4,506
Ages 33-40 (8 years): 8 × 1 × £751 = £6,008

Total basic award: £10,514

The compensatory award

The compensatory award is the larger and more variable element. Under section 123 of the ERA 1996, the tribunal must award “such amount as the tribunal considers just and equitable in all the circumstances, having regard to the loss sustained by the complainant in consequence of the dismissal.”

In practice, this means the tribunal calculates your actual financial losses resulting from the dismissal. The compensatory award is currently capped at the lower of £123,543 or 52 weeks’ gross pay.

What the compensatory award covers

The compensatory award can include several categories of loss:

Immediate loss of earnings: Your net pay (after tax and National Insurance) from the date of dismissal until the tribunal hearing, minus any earnings from new employment or benefits received during that period.

Future loss of earnings: If you haven’t found comparable employment by the hearing date, the tribunal can award compensation for a reasonable period of estimated future loss. The length of this period depends on your age, skills, the job market and how long it might realistically take to find equivalent work.

Loss of benefits: The value of any employment benefits you lost, such as a company car, private health insurance, employer pension contributions, or share options. These are valued at their cost to you (replacement value), not their cost to your employer.

Loss of statutory rights: A conventional award (typically £500 to £600) reflecting the fact that you need to build up qualifying service again in new employment before you’re protected against unfair dismissal.

Pension loss: Where you were a member of a workplace pension scheme, the tribunal can compensate you for lost employer contributions and, in defined benefit schemes, the loss of accrued pension rights. Pension loss can be the largest single element in high-value claims. The Presidential Guidance on pension loss sets out the approach tribunals take.

Expenses: Reasonable expenses incurred as a result of the dismissal, such as the cost of seeking new employment.

“People often focus on the basic award because the calculation is straightforward. But in most cases, the compensatory award is where the real value lies. If you were earning £40,000 and it takes six months to find comparable work, your loss of earnings alone could be £20,000 before you even factor in pension loss and other benefits. That’s why putting together a thorough schedule of loss is so important.”

Tom Street Principal Solicitor, Tom Street & Co.

Compensatory award cap (2026/27)

For dismissals on or after 6 April 2025, the compensatory award is capped at the lower of £123,543 or 52 weeks’ gross pay. If you earn £90,000 per year, your cap is £90,000 (52 weeks’ pay), not £123,543.

This cap does not apply to dismissals connected with whistleblowing, health and safety, or discrimination claims. Those carry unlimited compensation.

From 1 January 2027, the Employment Rights Act 2025 removes both the £123,543 monetary cap and the 52 weeks’ pay alternative for all unfair dismissal claims. Tribunals will award compensation based solely on actual losses.

Worked example: total compensation

Using Sarah from the basic award example above (age 45, 12 years’ service, £850/week gross, earning £44,200 per year). She was dismissed without a fair procedure and it took her four months to find a new job paying £38,000.

Basic award: £10,514 (as calculated above)

Compensatory award:
Immediate loss of earnings (4 months net): approx. £10,600
Future loss (lower salary, estimated 12 months): approx. £4,000
Loss of employer pension contributions (4 months at 5%): approx. £740
Loss of statutory rights: £500

Total compensatory award: approx. £15,840

Total compensation: approx. £26,354

This is a simplified example. Actual calculations involve detailed evidence of losses, mitigation efforts and tax treatment.

What’s the average payout for unfair dismissal?

This is the first question most people ask, and the honest answer is that the “average” can be misleading. According to the most recent Ministry of Justice employment tribunal statistics (2023/24), the median unfair dismissal award was £6,746 and the mean (average) was £13,749. The gap between the two tells the real story: a small number of very large awards pull the average well above what a typical claimant actually receives, so the median is usually the better guide to a likely outcome.

Your own figure could be far higher or lower, because compensation is built almost entirely from your losses, not a fixed tariff. The single biggest driver is how long you are out of work: someone who steps into an equivalent job the following month recovers very little, while someone who takes a year to find lower-paid work can recover a great deal. For context, the highest single unfair dismissal award in 2023/24 was £179,124 — an uncapped case involving whistleblowing or health and safety.

“I’d gently warn anyone against anchoring on an ‘average payout’ figure they’ve read online. I’ve acted for two people dismissed in almost identical circumstances who walked away with very different sums — the difference was down to how quickly each found new work and how thoroughly their losses were documented. A careful schedule of loss is worth far more than any headline average.”

Tom Street Principal Solicitor, Tom Street & Co.

It is also worth remembering that these statistics cover only cases that went all the way to a tribunal judgment. The large majority of claims settle beforehand, usually for a negotiated sum that reflects the strength of the case and the employer’s appetite for a fight, rather than a strict calculation of loss.

Adjustments the tribunal can make

Several factors can increase or decrease your total award. Understanding these is important when assessing the likely value of your claim.

Acas Code uplift (up to 25% increase)

If your employer unreasonably failed to follow the Acas Code of Practice on Disciplinary and Grievance Procedures, the tribunal can increase the compensatory award by up to 25%. Common failures include dismissing without holding a disciplinary hearing, not allowing you to be accompanied, failing to investigate properly, or not offering a right of appeal.

The uplift applies to the compensatory award only, not the basic award. The same 25% adjustment can also reduce the award if you unreasonably failed to follow the Code (for example, refusing to attend a grievance meeting).

Polkey reductions

Named after the case of Polkey v AE Dayton Services Ltd [1987] UKHL 8, a Polkey reduction applies where the tribunal finds that, even if a fair procedure had been followed, you would still have been dismissed. The tribunal estimates the percentage chance that a fair process would have led to the same outcome, and reduces the compensatory award by that percentage.

For example, if the tribunal decides there was a 60% chance you would have been fairly dismissed anyway, it reduces the compensatory award by 60%. This can significantly affect the value of claims where the employer had a genuine reason for dismissal but handled the process badly.

Contributory fault

Under section 123(6) of the ERA 1996, the tribunal can reduce compensation if your conduct contributed to the dismissal. The reduction applies as a percentage to both the basic and compensatory awards.

For instance, if you were dismissed for persistent lateness without a fair procedure, the tribunal might find the dismissal unfair (because procedure wasn’t followed) but reduce your award by 50% because your lateness contributed to the situation. Reductions of 25% to 75% are common where contributory fault is established.

Failure to mitigate losses

You have a duty to take reasonable steps to reduce your losses after dismissal. This means actively looking for comparable work, applying for suitable positions and accepting reasonable job offers. If the tribunal finds you haven’t made sufficient efforts, it can reduce the compensatory award.

“Reasonable” doesn’t mean you must accept any job. You are entitled to look for work at a comparable level and salary for a reasonable period before having to widen your search. Keep detailed records of your job search, including applications made, interviews attended and agencies registered with.

When compensation is unlimited

The compensatory award cap does not apply to certain types of dismissal. If your claim falls into one of these categories, there is no statutory limit on the compensation a tribunal can award:

Whistleblowing dismissals: Where you were dismissed for making a protected disclosure (reporting wrongdoing in the public interest).

Discrimination-related dismissals: Where your dismissal was connected to a protected characteristic under the Equality Act 2010 (age, disability, gender reassignment, marriage, pregnancy, race, religion, sex or sexual orientation). Discrimination awards can also include an injury to feelings element under the Vento bands: lower band , middle band , upper band (2026/27 rates).

Health and safety dismissals: Where you were dismissed for raising health and safety concerns or refusing to work in dangerous conditions.

From January 2027, the cap removal means all ordinary unfair dismissal claims will also carry unlimited compensation.

Tax treatment of compensation

How your compensation is taxed depends on what it covers:

Tax-free (up to £30,000): Compensation for loss of employment (the compensatory award) is generally exempt from income tax up to £30,000 under section 403 of the Income Tax (Earnings and Pensions) Act 2003. The basic award also falls within this exemption.

Taxable from the first pound: Any element that represents pay you should have received, such as payment in lieu of notice (PILON), is taxable as earnings. If your contract includes a PILON clause, the payment is always taxable. If your employer makes a payment in lieu without a contractual clause, it may still be treated as taxable earnings under the “post-employment notice pay” (PENP) rules.

Above £30,000: Any termination payment exceeding £30,000 is subject to income tax (but not employee National Insurance contributions). If your total compensation package, including any settlement payment, exceeds £30,000, plan for the tax liability.

Compensation vs settlement

Most unfair dismissal claims settle before reaching a tribunal hearing. A settlement agreement allows you and your employer to agree compensation without the uncertainty, delay and stress of a tribunal hearing.

Settlement amounts are negotiated, not calculated by a formula. Your likely tribunal compensation is the starting point for negotiation, but employers may pay more to avoid the cost and reputational risk of a hearing, or less if there are weaknesses in your case. Settlements can also include non-financial terms such as agreed references or the removal of restrictive covenants.

If you’re negotiating a settlement, our settlement agreement negotiations checker can help you assess your position.

“The biggest mistake I see is people undervaluing their claim because they only look at the basic award. Once you add up loss of earnings, pension loss, benefits and the Acas uplift, the total can be significantly higher than people expect. And from January 2027, with the cap removed, high earners especially need to think carefully before accepting early settlement offers.”

Tom Street Principal Solicitor, Tom Street & Co.

Current compensation limits at a glance