Compensation for unfair dismissal: how it is worked out

Compensation for unfair dismissal is not a fixed payment for losing your job. An award has two parts, and the tribunal considers the loss caused by the dismissal. Before comparing figures, separate the service and pay calculation from the financial loss you can explain with records. This guide explains the 2026 figures and the reasons an award may be reduced. A calculation is not a promise that you will receive that amount. Keep your payslips, employment dates and records of your search for work so an adviser can examine the assumptions behind your estimate.

Figures

Figures apply to dismissals from 6 April 2026.

The two parts of an award

An unfair dismissal award has a basic award and a compensatory award under the Employment Rights Act 1996. The basic award uses age, full years of service and a week’s pay. The compensatory award concerns loss caused by the dismissal. Calculating one does not answer the questions involved in the other.

Keep the two calculations separate. Write down the dates and pay figures used for the basic award. For the compensatory award, list the loss you are asking the tribunal to consider and the documents supporting it. This helps you avoid treating every amount on a payslip as a loss caused by dismissal.

Neither part should be treated as a guaranteed payment. Awards can be reduced where the employee would have been dismissed anyway if a fair procedure had been followed, or where their conduct contributed to the dismissal. Depending on the circumstances, a reduction can leave no compensation to pay.

The basic award

Employment Rights Act 1996 section 119 provides half a week’s pay for each full year of service under age 22, one week’s pay for each year aged 22 to 40, and one and a half weeks’ pay for each year aged 41 or over. The calculation counts up to 20 years of service.

From 6 April 2026, a week’s pay is capped at £751 under the Employment Rights (Increase of Limits) Order 2026. If the relevant weekly pay is above that figure, the cap limits the weekly amount used in this calculation. It does not mean everyone receives £751 for every year worked.

Example: an employee aged 35 has 6 full years of service and weekly pay of £500. All 6 years fall within the age 22 to 40 band. The calculation is 6 weeks × £500 = £3,000. These are invented figures to show the arithmetic, not an estimate for your case.

In that example, £500 is below the £751 weekly cap. The example shows the basic calculation before any reduction. It does not include a compensatory award. If your service spans different age bands, record the years in each band rather than applying your current age to every year.

Gather the employment dates and pay records before trying to calculate a total. If you are uncertain which dates or pay figure to use, mark the uncertainty for advice. A precise looking total can still be unreliable when one of the figures underneath it has not been checked.

The compensatory award

Under Employment Rights Act 1996 section 123, the compensatory award is what the tribunal considers just and equitable for loss caused by the dismissal. Lost earnings are an example. The question is not simply what sum you would like to receive, but what loss the dismissal caused.

From 6 April 2026, section 124 limits the compensatory award to £123,543 or 52 weeks’ gross pay, whichever is lower. These are limits, not starting amounts or a promise of payment. Your estimate of loss may be lower, and reductions may lower the award further.

Acas states that the limit on unfair dismissal compensation is due to be removed from 1 January 2027. That change is subject to consultation. Do not treat a future removal as an existing rule when estimating your case. Keep the date and the applicable figures visible alongside your calculation.

For lost earnings, keep records showing the income you received before dismissal and what you received afterwards. Explain any estimate rather than writing a total without a calculation. If you start another job, include that information. An adviser needs the full account of earnings to assess the loss you describe.

Why an award can be reduced

A failure in procedure does not automatically lead to compensation. An award can be reduced if the employee would have been dismissed anyway had a fair procedure been followed. That reduction can be to nothing. It is therefore necessary to assess the likely dismissal outcome as well as the process.

Employment Rights Act 1996 sections 122(2) and 123(6) also allow reductions where the employee’s conduct contributed to the dismissal. Keep records relevant to that issue, even if you find them difficult to discuss. A legal expert cannot give a useful assessment from only the documents that support your account.

You are expected to look for other work to reduce your loss. Keep a record of applications, responses and any earnings from new work. This is practical evidence for assessing the loss, not an instruction to assume that another job will be available immediately.

Prepare a calculation that shows the assumptions before asking about a possible award. Explain what each figure represents. Do not remove a possible reduction from the discussion because the employer made a procedural error. The loss, the likely outcome with a fair procedure and your conduct all need consideration.

The deadline to claim

Acas states that time limits for employment tribunal claims increased from 3 months to 6 months on 1 October 2026. The 3 month limit may still apply to problems that started before 1 October 2026. Check your deadline early and seek advice.

A claim usually starts with ACAS Early Conciliation before the ET1 tribunal claim form. Check the deadline before concentrating on the compensation calculation. A detailed estimate does not replace advice about when to act. Keep the employment dates and ACAS correspondence ready for that discussion.

How Belonge helps

A legal expert can review the employment dates, payslips, dismissal explanation and evidence of loss. Bring your calculation with the documents behind each figure. Explain where you have estimated an amount. That allows the assessment to address the legal merits and the uncertainties rather than repeat an unsupported total.

A Case Assessment costs £149, or 3 payments of £49.67 with Klarna. It includes one hour with a legal expert by video or audio on Microsoft Teams, a review of your evidence and key documents, and a written report within 24 hours of your appointment if all required documents are provided.

Our legal experts are solicitors, barristers, CILEX professionals and accredited HR Directors. We advise employees in England, Scotland and Wales.

Belonge prepares clients. We do not represent clients and do not attend meetings, hearings or tribunals.

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