UK · Employment rights

Employment tribunal compensation

UK employment tribunal awards come in five forms: the basic award, the compensatory award, injury to feelings (in discrimination claims), wage and holiday payments owed, and damages for breach of contract. This page sets out how each is calculated, the tax treatment, and three worked examples covering the common claim types.

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The components of a tribunal award

A typical award has multiple components. For an unfair dismissal claim, expect a basic award plus a compensatory award. For a discrimination claim, those two plus an injury to feelings award. For a wages claim, the amount unlawfully withheld. Notice pay, holiday pay and contractual bonuses are usually paid separately through payroll and form part of the broader settlement.

The tribunal’s overarching principle is to put the claimant in the financial position they would have been in had the unlawful act not occurred. The statutory caps then constrain that figure for unfair dismissal claims.

Basic award

The basic award is calculated using the statutory redundancy formula in sections 119 to 122 of the Employment Rights Act 1996. Each year of continuous service is multiplied by a weekly pay figure, weighted by the claimant’s age in that year of service:

  • Half a week’s pay for each year worked under age 22.
  • One week’s pay for each year worked aged 22 to 40.
  • One and a half weeks’ pay for each year worked aged 41 or over.

Two caps apply. The maximum number of years counted is 20, working back from the dismissal date. The weekly pay is capped (£700 per week for dismissals on or after 6 April 2024). The maximum basic award at the current cap is 20 × 1.5 × £700 = £21,000. The cap is uprated each April.

The redundancy pay calculator produces this figure for any age, service and pay combination.

Compensatory award

The compensatory award covers actual financial loss flowing from the dismissal: net loss of earnings, loss of benefits (pension contributions, private medical, bonuses, share schemes), and reasonable job-search expenses.

The calculation runs from the dismissal date until the claimant finds comparable employment, subject to the statutory cap. Future loss is included where the new role pays less; the tribunal sets a reasonable period for the wage gap to close.

For claims presented on or after 6 April 2024 the cap is £115,115 or 52 weeks’ gross pay, whichever is the lower. Median awards land far below the cap; high-value awards normally involve senior roles with no comparable alternative.

Injury to feelings (discrimination claims)

Injury to feelings awards compensate the distress and humiliation caused by discrimination. They are not available in standard unfair dismissal claims, only where the underlying conduct breaches the Equality Act 2010.

The Vento bands set the framework. For acts on or after 6 April 2024:

  • Lower band (£1,200 to £11,700): one-off acts or less serious cases.
  • Middle band (£11,700 to £35,200): serious cases that do not warrant the upper band.
  • Upper band (£35,200 to £58,700): the most serious cases. Exceptional cases can attract awards above £58,700.

The bands are uprated each April. Injury to feelings is normally paid tax-free under a long-standing HMRC concession.

Discrimination compensatory awards

The compensatory award for a successful discrimination claim is uncapped. The same principle applies as for unfair dismissal: actual financial loss flowing from the discriminatory act, subject to mitigation. Where the discrimination has caused long-term loss of earnings or a career change, the figures can be significantly higher than the unfair dismissal cap.

Aggravated damages are sometimes awarded on top, for conduct that is high-handed, malicious or wilful. Exemplary damages are theoretically available but almost never awarded.

Wage claims

Unpaid wages, including unpaid bonuses and commission, can be recovered under Part II of the Employment Rights Act 1996. The tribunal awards the amount unlawfully deducted. For a series of deductions, the three-month time limit runs from the most recent deduction in the series.

The cap on backdated holiday pay claims is two years. That limit was introduced by the Deduction from Wages (Limitation) Regulations 2014 and has not been successfully challenged.

Notice pay

If the employer terminates without giving the contractual notice, the employee can claim damages for the lost notice period at tribunal under the breach of contract jurisdiction. The award is gross pay for the unworked notice, less any earnings from new employment during what would have been the notice period.

The breach of contract jurisdiction at tribunal is capped at £25,000. Higher-value contract claims have to be brought at the county or high court, where the limitation period is six years.

The PILON calculator produces the gross figure. The final pay estimator gives a rough net.

Holiday pay

Accrued but untaken statutory holiday must be paid in the final pay packet. If the employer did not, the tribunal will add it to the award. The calculation uses the statutory entitlement of 5.6 weeks per year, pro-rated to the leave-year position at termination.

The holiday entitlement calculator works out the accrued days for any work pattern.

Worked example 1: simple unfair dismissal

Employee aged 34, three years of continuous service, gross pay £550 per week. Unfair dismissal claim succeeds. Out of work for 12 weeks, then finds a comparable role at the same pay.

Basic award: 3 × 1 × £550 = £1,650 (within the weekly pay cap).

Compensatory award: 12 weeks of lost net pay at £415 per week = £4,980, plus £150 in job-search expenses. Plus loss of 3 months’ employer pension contribution at 5% gross = £357. Total £5,487.

Unpaid notice: 4 weeks at £550 gross = £2,200, paid through payroll under PAYE.

Total award: roughly £9,337. Basic and compensatory elements (£7,137) are inside the £30,000 tax-free allowance.

Worked example 2: discrimination + dismissal

Employee aged 45, eight years of service, weekly pay £850 (above the £700 cap). Out of work for nine months. Discrimination claim and unfair dismissal claim both succeed.

Basic award: 4 years aged 22-40 × £700 = £2,800, plus 4 years aged 41+ × £700 × 1.5 = £4,200. Total basic £7,000.

Compensatory award (unfair dismissal): 39 weeks of lost net pay at £615 per week = £23,985, plus pension and benefits loss £2,200 = £26,185. Below the cap.

Discrimination compensatory: not separately added because the same loss has already been covered. Injury to feelings award (Vento middle band): £22,000.

Notice pay: 1 month at £850 = £3,683 gross, paid through payroll.

Total tribunal award: £55,185 (basic + compensatory + injury to feelings). Of which £30,000 is tax-free, £22,000 injury to feelings is tax-free under HMRC concession, the remaining £3,185 is taxed at source. The notice payment of £3,683 flows separately through payroll.

Worked example 3: senior employee, capped

Employee aged 55, twenty years of service, weekly pay £2,200. Out of work for eighteen months before finding a role at £1,600 per week.

Basic award: capped at 20 × 1.5 × £700 = £21,000.

Compensatory award before cap: 78 weeks at £1,400 net difference = £109,200, plus pension loss £18,000 = £127,200.

Cap: lower of £115,115 or 52 weeks’ gross pay. 52 × £2,200 = £114,400. Lower of the two is £114,400. Compensatory award is capped at £114,400.

Total award: £21,000 + £114,400 = £135,400. Of which £30,000 is tax-free; the remaining £105,400 is taxed as income, mostly at the higher rate. Sometimes a structured settlement involving pension contribution reduces the effective tax cost.

Useful calculators

Related reading

Frequently asked questions

What is the maximum compensation at an employment tribunal?
For unfair dismissal claims presented on or after 6 April 2024, the compensatory award is capped at £115,115 or 52 weeks' gross pay, whichever is the lower. The basic award is uncapped within the statutory formula (maximum £21,000 at the current £700 weekly cap and 20-year service limit). Discrimination claims have no cap on either the compensatory award or the injury to feelings award; the highest published discrimination awards run into seven figures.
What is the Vento bands injury to feelings award?
The Vento bands set the range for injury to feelings awards in discrimination cases. For acts on or after 6 April 2024, the lower band is £1,200 to £11,700 (one-off or less serious cases), the middle band is £11,700 to £35,200 (serious cases that do not justify the upper band), and the upper band is £35,200 to £58,700 (the most serious cases, with even higher awards in exceptional circumstances). The bands are uprated each April.
Is tribunal compensation taxed?
Termination payments are tax-free up to £30,000 under section 403 of the Income Tax (Earnings and Pensions) Act 2003. This covers the basic award, the compensatory award for loss of earnings, and any ex-gratia element. Payments that are earnings (notice pay or PILON, accrued holiday pay, contractual bonuses) are taxable in full through PAYE. Injury to feelings awards have a long-standing HMRC concession and are typically paid tax-free.
Do I have to mitigate my loss?
Yes. Claimants have a duty to take reasonable steps to find comparable employment. The tribunal can reduce the compensatory award if you do not, or if you turn down a reasonable offer. Keep records of job applications, interviews and offers. The duty does not require you to take any work going; it requires reasonable attempts at comparable work.

General information about UK tribunal awards and the tax treatment, not legal or tax advice. Outcomes depend on mitigation and the tribunal’s findings of fact. For your specific situation, contact ACAS or an employment-law solicitor.