Compensatory award

The compensatory award is the larger part of most unfair dismissal payouts. Unlike the basic award, it is not a fixed formula — it is calculated from your actual financial loss and can be significantly reduced by your own conduct, the procedure followed, or your efforts to find new work.

What is the cap on the compensatory award?

From 6 April 2026, the compensatory award is capped at the lower of 52 weeks of actual gross pay or £118,223 — whichever is smaller. This cap does not apply to claims for whistleblowing detriment or dismissal, or to discrimination claims under the Equality Act 2010. In those categories, the tribunal can award as much as it considers just and equitable to compensate actual loss.

What heads of loss make up the compensatory award?

The compensatory award covers: immediate loss of earnings from dismissal to the date you found new work (or the hearing); future loss of earnings where the tribunal believes a pay gap or unemployment will continue; loss of statutory employment protection rights (a conventional sum, usually £350 to £500); loss of pension rights; and loss of other financial benefits such as a company car or private medical insurance.

What deductions can reduce the compensatory award?

A Polkey reduction applies where the tribunal finds the employer would have fairly dismissed you anyway even with fair procedure. Contributory fault cuts the award by the percentage attributed to your own blameworthy conduct. The ACAS uplift can adjust by up to 25% for Code failures. Failure to mitigate by not looking for new work can also reduce the award. All deductions are applied in a set order before the statutory cap is applied.

How is the compensatory award different from the basic award?

The basic award is a fixed, formula-based payment calculated from age, service and weekly pay cap — it is not about actual loss. The compensatory award covers actual financial loss and is assessed differently. You can recover both in an unfair dismissal claim: the basic award first, then the compensatory award on top, each subject to its own rules on reductions and caps.

Does the 52-week cap mean I can only recover one year of pay?

Not exactly. The cap is the lower of 52 weeks of actual gross pay or £118,223. If your pay is high, the monetary ceiling bites first. If your pay is modest, the 52-week earnings ceiling applies. The cap is a ceiling on the total compensatory award after all reductions, not on any individual head of loss. Long-term loss claims can still be argued in full, but the total is cut to whichever cap applies.

Is the compensatory award taxable?

The first £30,000 of any employment termination payment is generally exempt from income tax in most standard unfair dismissal cases. However, where a payment includes contractual pay in lieu of notice or exceeds £30,000, the excess is taxable as employment income. For large awards in discrimination or whistleblowing cases, tax treatment is complex.

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Last reviewed: June 2026

is the second, larger part of an unfair dismissal payout — it compensates for

actual financial loss

caused by the dismissal, capped at the lower of

52 weeks of gross pay or £118,223

(from 6 April 2026), with no cap in whistleblowing and discrimination cases.

Where this comes from

Employment Rights Act 1996, s.123

— defines the compensatory award as the amount just and equitable, subject to the statutory cap.

Employment Rights Act 1996, s.124

— imposes the cap and disapplies it for whistleblowing dismissal claims.

Employment Rights (Increase of Limits) Order 2025

— sets the compensatory award cap at £118,223 from 6 April 2026.

Norton Tool Co Ltd v Tewson

— established the classic heads of loss used in every compensatory award assessment.

What the compensatory award covers

An unfair dismissal award has two parts. The

is a fixed formula. The

is different: assessed on facts, it puts you in the financial position you would have been in had the dismissal not happened.

Immediate loss of earnings

covers pay lost from dismissal to the date you found new work or the hearing, whichever is earlier. Net figures are used — the tribunal compensates what you would actually have kept after tax.

Future loss of earnings

covers the period beyond the hearing where you are likely to continue earning less than before, or remain unemployed. This head can be significant for senior claimants or those in specialist roles.

Loss of statutory rights

is a conventional sum (usually £350–£500) for losing the continuous employment you built up and needing to rebuild a qualifying period with a new employer.

Loss of pension rights

is often the largest forgotten head. Employer contributions lost during the unemployment period can add thousands, calculated by a simplified or actuarial method.

Loss of benefits in kind

covers private medical insurance, a company car, share options, or other remuneration package items.

The cap and when it does not apply

The cap from 6 April 2026 is the lower of

52 weeks of actual gross weekly pay

. It is applied after all heads of loss are totalled and all reductions made — deductions first, cap last.

to automatically unfair dismissal for protected disclosure (whistleblowing) under the Public Interest Disclosure Act 1998, nor to most discrimination claims under the Equality Act 2010, where there is no statutory ceiling and injury to feelings is an additional head.

Reductions that cut the compensatory award

applies where the employer would have dismissed you anyway with a fair procedure — the percentage chance of that outcome reduces the award.

reduces the award by the percentage the tribunal attributes to your own blameworthy pre-dismissal conduct. Both Polkey and contributory fault can apply in the same case, and are applied sequentially.

under TULRCA 1992 s.207A can adjust by up to 25% upward (employer failed the Code) or downward (you failed the Code).

reduces the award where you did not take reasonable steps to find new work. Keep a dated job-search log from the day of dismissal.

How the calculation works in practice

Marcus is dismissed unfairly. His net weekly pay was

. He finds new work 26 weeks later at

. The hearing is at 26 weeks. The tribunal assesses 12 months of future pay gap.

Immediate loss: 26 weeks × £680

Future pay gap: 52 weeks × £140

Pension loss (estimated)

Total before reductions

A 20% Polkey reduction leaves

— well within the cap. Marcus also receives a separate basic award. The two are assessed and paid independently.

• Not keeping a job-search record.
• Without evidence of your search, the tribunal may find you failed to mitigate and reduce your award substantially.
• Forgetting pension loss.
• Even a modest 5% employer contribution lost over two years can add thousands to the claim.
• Using gross rather than net figures.
• The compensatory award compensates net loss. Gross figures will be corrected and can undermine credibility.
• Ignoring the 52-week cap for high earners.
• If your annual pay exceeds £118,223, the monetary cap bites before 52 weeks.

Frequently asked questions

Sources & further reading

• — compensatory award definition
• — cap and whistleblowing exception
• Unfair dismissal compensation

Need to work out your heads of loss?

Start My Claim walks you through every head of loss and generates a schedule of loss in the format tribunals expect.

Last reviewed: June 2026.

Cap (£118,223) confirmed against Employment Rights (Increase of Limits) Order 2025, effective 6 April 2026.

This page is explanatory only and is not legal advice. Start My Claim is self-service software, not a law firm.