UK · Employment law

Unfair dismissal compensation

UK unfair dismissal compensation has two elements: the basic award (calculated on the statutory redundancy scale, capped at £21,000 in 2024-25) and the compensatory award (loss of earnings and benefits, capped at the lower of £115,115 or 52 weeks pay for 2024-25). Automatic unfair dismissal, whistleblowing and discrimination claims can attract uncapped awards.

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The two-award structure

Successful unfair dismissal claims attract two potential awards:

  • Basic award. A fixed calculation based on age, length of service and weekly pay. Mirrors statutory redundancy pay. Compensates the loss of employment as such.
  • Compensatory award. The financial loss actually suffered by the employee - lost pay, lost benefits, pension losses and expenses of finding new work. Subject to a statutory cap.

Both awards are calculated separately and totalled. The basic award is the minimum floor; the compensatory award adds real financial losses on top.

Basic award calculation

The basic award uses the same formula as statutory redundancy pay:

  • 0.5 week per year of service worked while under age 22.
  • 1 week per year of service worked between ages 22 and 40.
  • 1.5 weeks per year of service worked from age 41.

Maximum service counted: 20 years. Weekly pay is capped at the statutory maximum (£700 per week from April 2024, uprated annually). Maximum basic award: £700 x 30 = £21,000.

Example: employee dismissed unfairly aged 45 after 15 years service. Award = (4 years x 0.5) at 22-, whichever applies, plus (18 years x 1) between 22-40, plus (5 years x 1.5) at 41+ = often around 15 to 20 weeks pay for a mid-career worker. Use the redundancy pay calculator which uses the same formula.

Compensatory award

The compensatory award covers financial losses actually incurred. Elements typically claimed:

  • Loss of net earnings from dismissal to hearing (or new job, if earlier).
  • Future loss of earnings from hearing to a projected recovery point.
  • Loss of benefits - pension employer contributions, private medical insurance, car allowance, share options.
  • Loss of statutory rights - a small conventional award (typically £500) to reflect the loss of unfair dismissal protection which the employee will have to rebuild in any new role.
  • Expenses of finding new work - travel to interviews, CV writing costs, retraining costs where reasonable.

Statutory cap

The compensatory award is capped at the lower of:

  • The current statutory maximum (£115,115 for the 2024-25 tribunal year), OR
  • 52 weeks of the employee's actual gross pay.

The 52-week cap can bite hard on lower-paid employees. Example: employee earning £30,000 gross has a 52-week cap of £30,000 - even if actual losses over 2 years exceed £60,000. This is a policy trade-off Parliament made in the 2013 reforms.

The cap does not apply to:

  • Whistleblowing dismissals.
  • Discrimination dismissals (Equality Act claims).
  • Dismissals for asserting a statutory right in health and safety cases.
  • Trade union-related dismissals in some categories.

Mitigation duty

The employee must take reasonable steps to mitigate loss - broadly, look for and take suitable alternative work. Tribunals reduce the compensatory award by:

  • Earnings actually received in mitigation.
  • Earnings the employee could reasonably have earned but did not (failed mitigation).
  • Benefits received that reduce net loss (JSA, ESA, Universal Credit).

Failure to take reasonable steps to find work - refusing suitable job offers, not applying for available roles, not signing on with an agency - can reduce the award significantly. Records of job applications, interviews and effort are essential.

Polkey reduction

Where the tribunal finds procedural unfairness but is satisfied the employee would probably still have been dismissed had a fair procedure been followed, the compensatory award is reduced to reflect the percentage chance of dismissal. Common outcomes:

  • 100 per cent Polkey - the employee would definitely have been dismissed. Compensatory award reduced to zero (basic award still payable).
  • 50 per cent Polkey - even chance. Compensatory award reduced by half.
  • 0 per cent Polkey - fair procedure would have produced a different outcome. Full compensatory award.

Polkey applies only where the tribunal finds unfair dismissal on procedural grounds. Substantive unfairness (no fair reason at all) does not attract a Polkey reduction.

Contribution and uplift

Two further adjustments can apply:

  • Contribution. Where the employee's conduct contributed to the dismissal, the tribunal can reduce the award by a percentage reflecting the contribution. Common in conduct dismissals where the conduct existed but the dismissal was procedurally unfair or disproportionate.
  • ACAS Code uplift/downgrade. Where either party unreasonably failed to comply with the ACAS Code of Practice on Disciplinary and Grievance Procedures, the compensatory award can be uplifted (employer breach) or reduced (employee breach) by up to 25 per cent.

Typical award ranges

Real-world unfair dismissal awards vary widely. A rough guide based on Ministry of Justice tribunal statistics:

  • Lower-middle bracket unfair dismissal: £5,000 to £15,000 total.
  • Median unfair dismissal award (2023-24 published statistics): around £6,000 - £8,000.
  • Upper end unfair dismissal (senior roles, long service): £30,000 to £80,000 typical, more where cap does not bite.
  • Whistleblowing and discrimination unfair dismissal: often £30,000 to £250,000+ (no statutory cap).

Median is much lower than headline settlements suggest. Many claims settle at ACAS conciliation for figures below what tribunal awards would produce. Take specialist legal advice on settlement value; a settlement agreement can lock in a certain outcome vs the uncertainty of hearing. See settlement agreement calculator.

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Frequently asked questions

How is unfair dismissal compensation calculated?
Two elements. Basic award: 0.5 to 1.5 weeks pay per year of service depending on age, up to 20 years and £700 per week (2024-25), maximum £21,000. Compensatory award: actual financial losses (lost pay, pension, benefits) capped at the lower of £115,115 or 52 weeks pay for 2024-25.
What is the cap on unfair dismissal compensation?
For the compensatory award only: the lower of £115,115 or 52 weeks gross pay in 2024-25 (uprated annually). The basic award is separately capped at £21,000. Whistleblowing, discrimination and some other categories have no cap.
Do I have to look for a new job after being dismissed?
Yes - the mitigation duty. Tribunals reduce the compensatory award by earnings you actually received, plus earnings you could reasonably have earned but did not. Keep records of job applications, interviews and effort to show mitigation.
What is a Polkey reduction?
Where the tribunal finds procedural unfairness but is satisfied you would probably still have been dismissed had a fair procedure been followed, the compensatory award is reduced by the percentage chance of dismissal - anywhere from zero (fair procedure would have made no difference) to 100 per cent (would have been dismissed anyway).
How much is a typical unfair dismissal claim worth?
Median tribunal awards in 2023-24 were around £6,000 to £8,000. Higher for senior long-serving employees; much higher (£30,000 to £250,000+) for discrimination or whistleblowing dismissals where no cap applies. Many claims settle at ACAS for figures below the potential tribunal outcome.

Sources and further reading

General information about UK employment law, not legal advice. For your situation, contact ACAS or an employment-law solicitor.