This guide is maintained as a current resource for November 2026 and covers only the laws of England and Wales. Information is for general guidance, not legal advice. Consult a qualified solicitor for advice specific to your situation.
Comprehensive guide to how compensation is structured in employment tribunal awards in England and Wales. Explains basic and compensatory awards, statutory caps, uncapped discrimination awards, injury to feelings, mitigation, and practical steps for claimants and employers.
When an employee brings a successful claim before an employment tribunal in England and Wales, the tribunal may award compensation designed to put the employee in the position they would have been in but for the employer's unlawful conduct. Compensation awards vary significantly depending on the type of claim, the losses suffered, statutory limits, and whether discrimination or other protected rights are involved. This article sets out how compensation in tribunal awards is structured, explains key concepts such as basic and compensatory awards, outlines how loss is calculated, and highlights statutory caps and relevant legal principles.
Legal Framework for Compensation Awards
Tribunals in England and Wales have authority under various statutes, chiefly the Employment Rights Act 1996, Equality Act 2010, and associated regulations, to award compensation in claims such as unfair dismissal, discrimination, redundancy-related disputes, and breaches of employment rights. The rules governing compensation differ by claim type, and some awards are subject to statutory caps, while others are uncapped.
Key Components of Compensation
Basic Award (Unfair Dismissal and Constructive Dismissal)
The basic award is a statutory element of compensation in unfair dismissal and some constructive dismissal claims. It uses a set formula similar to statutory redundancy pay and takes into account:
- Length of continuous service (up to 20 years).
- Age during employment (higher multipliers for older years of service).
- Gross weekly pay, subject to a statutory weekly cap.
Tribunals multiply a week's pay by the relevant factor for each year of service:
- 0.5 weeks' pay for each year under age 22.
- 1 week's pay for each year aged 22–40.
- 1.5 weeks' pay for each year aged 41 or over.
The weekly pay figure is capped (e.g. £719 from 6 April 2025). The basic award cannot exceed the statutory maximum (currently up to £21,570).
Compensatory Award (Financial Losses)
The compensatory award compensates for the actual financial loss suffered as a direct result of the employer's unlawful action, such as unfair dismissal. It covers:
- Loss of earnings, including past and future loss.
- Loss of statutory rights or benefits.
- Loss of pension or bonus entitlement, where applicable.
Tribunals assess the compensatory award by looking at the evidence of loss and what is “just and equitable in all the circumstances”. Unlike the basic award, the compensatory award aims to reflect real financial harm.
Statutory Caps on Compensation
For ordinary unfair dismissal claims, the compensatory award is capped at the lower of:
- One year's gross pay; or
- The statutory maximum (e.g. £118,223 for awards from 6 April 2025).
This cap does not apply to dismissals connected with certain protected acts, such as whistleblowing or health and safety, and does not apply in discrimination claims.
Some tribunal awards include additional payments. For example, failure to comply with an order to reinstate an employee can lead to an additional award, up to a specified number of weeks' pay.
Compensation in Discrimination Claims
Uncapped Compensation
Claims under the Equality Act 2010 for unlawful discrimination (for example race, sex, disability) are not subject to the statutory caps that apply in ordinary unfair dismissal. This means tribunals can award:
- Unlimited compensation for financial losses, including future losses.
- Injury to feelings awards, which recognise the emotional impact of discrimination.
Injury to Feelings and Vento Bands
Injury to feelings awards are structured using Vento guidelines. Updated periodically, these bands help tribunals assess the appropriate level of award for the emotional impact of discriminatory conduct:
- Lower band: less serious cases.
- Middle band: serious cases not warranting upper band.
- Upper band: the most serious cases.
- Exceptional cases: amounts exceeding the upper band limits.
For claims presented on or after 6 April 2025, typical band ranges (subject to periodic revision) fall into structured levels reflecting the severity of the impact.
Deductions, Adjustments, and Mitigation
Tribunals assess compensatory awards after allowing for:
- Mitigation: the employee's obligation to seek alternative employment to reduce loss.
- Contributory conduct: where the employee's conduct contributed to the dismissal or loss, which can reduce the award.
- Complying with the Acas Code: failure by either party to follow recognised procedures may lead tribunals to adjust awards upwards or downwards.
Example Structure of a Tribunal Compensation Award
A typical tribunal award in an unfair dismissal case might include:
- Basic award – statutory calculation based on service, age and weekly pay.
- Compensatory award – quantifying financial loss to date and into the future.
- Adjustments – deduction for mitigation or contributory conduct; possible uplift for procedural failures.
In discrimination claims:
- Financial losses – including earnings and pension losses.
- Injury to feelings award – band-based assessment.
- Other losses – such as interest on awards or specific loss elements evidenced.
Practical Considerations
Schedules of Loss
Claimants often prepare a schedule of loss, a document setting out the detailed basis for compensation claims, including periods of loss and calculations supporting each element. This assists tribunals in understanding and verifying claimed amounts.
Time Limits
Most employment tribunal claims must be presented within three months less one day from the date of the relevant act (e.g. dismissal) unless an extension for exceptional circumstances is granted.
Evidence and Documentation
Accurate records of pay, job search efforts, benefits lost, pension statements, and medical or psychological evidence in discrimination cases support robust compensation claims.
Common Questions
Are tribunal awards taxable?
Certain elements of tribunal compensation (e.g. injury to feelings) may be tax-free up to specified limits, but tax treatment depends on the nature of the award and current tax law.
Can awards be enforced if an employer refuses to pay?
Claimants can seek enforcement through court procedures, and there are statutory mechanisms to pursue unpaid awards.
Do discrimination awards have a cap?
Compensation for discrimination is generally uncapped, unlike ordinary unfair dismissal awards.
Key Takeaways
Compensation in employment tribunal awards in England and Wales is structured to reflect the type of claim, the financial and emotional loss suffered, and statutory limits. In unfair dismissal claims, compensation combines a basic award and a compensatory award subject to statutory caps, while discrimination claims may attract uncapped awards including injury to feelings. Tribunal awards are sensitive to evidence of loss, mitigation efforts, and procedural conduct by both employer and employee. Understanding how compensation is structured helps claimants and employers anticipate potential outcomes and the legal principles that tribunals apply.
