Basic Award vs Compensatory Award

How employment tribunals calculate your compensation in unfair dismissal claims. Understand the statutory formula, caps, and deductions that affect your payout.

What is the basic award formula?

The basic award uses a statutory formula under ERA 1996 s.119: 0.5 week's pay per year of service under age 22; 1 week's pay per year aged 22–40; 1.5 weeks' pay per year aged 41 or over. Maximum 20 years' service counts. Weekly pay is capped at £751 (2026/27). Maximum basic award: 20 years × 1.5 × £751 = £22,530.

Is there a cap on compensatory awards?

Yes. The compensatory award is capped at the lower of: (1) the statutory limit (£123,543 for 2026/27, reviewed annually), or (2) 52 weeks of the claimant's normal weekly pay. However, discrimination claims have NO cap, which is why many claimants add discrimination claims to unfair dismissal.

What is a Polkey reduction?

A Polkey reduction is applied where the tribunal finds the dismissal was procedurally unfair, but decides the employer would have dismissed the claimant anyway, even if the correct procedure had been followed. The tribunal estimates the percentage chance of fair dismissal and reduces the compensatory award accordingly (often 50-100%).

How is contributory fault different from a Polkey reduction?

Contributory fault (s.123(6) ERA) reduces compensation because the claimant's own blameworthy conduct contributed to the dismissal (e.g., gross misconduct). A Polkey reduction is applied where the dismissal was unfair but would have happened anyway regardless of conduct. Both can apply to the same case.

Does the basic award apply to discrimination claims?

No. The basic award applies only to unfair dismissal claims. In discrimination claims, compensation is limited to the compensatory award (injury to feelings, financial loss, etc.), which has no statutory cap. This is why discrimination claims can result in much larger awards.

What counts as financial loss in the compensatory award?

Financial loss includes: past lost earnings from dismissal to tribunal hearing; future loss of earnings (estimated); loss of benefits (pension, health insurance, bonuses); loss of statutory rights (notice, redundancy rights); expenses incurred; and in discrimination cases, additional injury to feelings and personal injury uplift.

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Learn how basic awards and compensatory awards work in unfair dismissal claims, including caps, Polkey reductions, and contributory fault.

Basic award max (2026/27)

Compensatory award cap (2026/27)

Discrimination claims

The Two-Part Compensation Structure

When you win an unfair dismissal claim, the employment tribunal awards compensation in two separate parts: the

. These serve different purposes and are calculated differently.

A statutory formula based on age, length of service, and weekly pay. This reflects your service with the employer regardless of financial loss. It applies only to unfair dismissal claims.

Compensation for actual financial loss flowing from the dismissal (lost earnings, benefits, pension, future loss, etc.). This is assessed on the facts of your case and is capped at a statutory limit.

Both awards are subject to deductions (Polkey reductions, contributory fault, failure to mitigate) and other adjustments (ACAS uplift). Understanding how they work is essential to predicting your compensation.

How the Basic Award is Calculated

The basic award uses a statutory formula under s.119 of the Employment Rights Act 1996. It is not based on your actual loss but on a fixed calculation.

Weekly pay × Number of years service × Age multiplier

You are 45 years old, have 8 years of service, and earned £400 per week.

£400 × 8 years × 1 week = £3,200

This basic award would be subject to any reductions for contributory fault.

The maximum basic award is

, calculated as 20 years × 1.5 weeks × £751 (the statutory weekly pay cap). In practice the vast majority of basic awards are well below this — it requires 20+ years of service, all spent aged 41 or over, at or above the salary cap.

The Compensatory Award: Actual Financial Loss

The compensatory award is designed to compensate you for the actual loss you have suffered as a result of the dismissal. The tribunal assesses your specific circumstances and calculates loss across several categories.

Past Loss of Earnings

Your lost salary from dismissal to the tribunal hearing date. The tribunal calculates: gross weekly pay × number of weeks unemployed, minus any statutory payments (notice, redundancy, tax implications).

Future Loss of Earnings

Estimated loss of earnings from the tribunal hearing onwards, using the multiplier/multiplicand approach. The tribunal estimates how long you would remain out of work and at what salary.

Bonuses, health insurance, travel allowances, gym membership, stock options, and other contractual benefits lost through dismissal. You must evidence these at the remedy hearing.

Loss of employer pension contributions or the wider loss of pension accrual. This can be calculated using the simplified approach (loss of contributions) or actuarial approach (full career-length loss).

Training and professional development costs not recouped; damage to professional reputation; contractual notice period not worked; outplacement costs you incurred.

Compensatory Award Cap

Limited to the lower of: (1)

52 weeks of your normal weekly pay

£123,543 (2026/27, reviewed annually)

. This cap does NOT apply to discrimination claims, which is why discrimination claims can exceed this amount substantially.

Reductions: Polkey, Contributory Fault, and Mitigation

Even if you win your claim, your compensation can be reduced by the tribunal for three separate reasons. Understanding these is crucial to predicting your likely award.

Polkey Reduction (Procedural Unfairness)

Where the dismissal was procedurally unfair (no hearing, no investigation, no warning), but the tribunal finds the employer would have dismissed you anyway if they had followed the correct procedure. The tribunal estimates the percentage chance of fair dismissal and reduces compensation accordingly. Range: 25-100%.

This applies separately to the compensatory award and does not affect the basic award.

Contributory Fault (s.123(6) ERA 1996)

Where your own blameworthy conduct contributed to the dismissal, the tribunal can reduce compensation by whatever percentage it considers just and equitable. Examples: attendance issues, poor performance, breach of confidentiality, insubordination.

This can reduce the compensatory award but not below zero. The basic award can be reduced to zero under s.122.

Failure to Mitigate Loss

You have a duty to mitigate your loss by taking reasonable steps to find alternative employment. If you are found to have unreasonably failed to look for work or turned down reasonable job offers, the tribunal can reduce your compensation.

You must provide evidence of job applications, interviews, and recruitment agency contact.

Interaction of Reductions

All reductions can apply to the same case. If you are 50% Polkey, 25% contributory, and failed to mitigate 15%, the tribunal will reduce your compensatory award accordingly. The order of application matters, but the outcome is typically multiplicative: multiply the award by each percentage in turn.

When predicting your compensation, ask yourself:

Is dismissal likely to be procedurally unfair or substantively unfair?

If procedural only, expect a Polkey reduction.

Did I contribute to the dismissal?

Expect contributory fault reduction.

Did I actively job search?

Why Discrimination Claims Have No Cap

If your claim includes discrimination (sex, race, age, disability, etc.), the compensation structure is very different. There is no statutory cap, which is why many employment claims include both unfair dismissal (capped) and discrimination (uncapped).

No Cap on Discrimination

Discrimination damages under the Equality Act 2010 have no statutory limit. Compensation can include: financial loss (same as unfair dismissal), injury to feelings (Vento bands, but no lower cap in theory, though tribunals rarely award below £1,000), aggravated damages, personal injury uplift for psychological harm.

This is why, for example, a £200,000 discrimination award is possible, but a £200,000 unfair dismissal award (capped at £123,543) is not. If your claim is strong, consider whether discrimination is also present (protected characteristic engaged + less favourable treatment or harassment/victimization).

Example: Unfair Dismissal + Age Discrimination

You are dismissed unfairly at age 62 after 20 years. Unfair dismissal award capped at £123,543. But if you were dismissed because of age (ageism), discrimination damages are uncapped and could include injury to feelings of £15,000-£45,000+ plus full financial loss.

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Employment Rights Act 1996