This guide is maintained as a current resource for July 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.
Explains how employment tribunal judges determine compensation in England and Wales. Covers types of awards, statutory formulas, how past and future losses are calculated, caps and limits on compensation, adjustments for contributory conduct, discrimination injury to feelings awards, remedy hearings, and practical tax and benefits considerations for claimants and employers.
When an employment tribunal in England and Wales upholds a claimant's complaint - such as unfair dismissal, discrimination or unlawful deductions from pay - the tribunal may award compensation. Compensation is intended to put the claimant back into the position they would have been in had the wrongdoing not occurred, rather than to punish the employer. Tribunal judges follow statutory rules, case law and established principles when deciding how much to award, taking account of individual circumstances, statutory caps and recognised heads of loss. This article explains what tribunals consider when determining compensation, the different types of awards available, how amounts are calculated, and practical aspects claimants and respondents should understand before, during and after a hearing.
Types of Compensation Tribunals May Award
Tribunals can make different kinds of awards depending on the nature of the claim. Common types include:
- Financial awards: Compensation for actual financial losses caused by the employer's conduct.
- Compensatory awards: Typically payable in unfair dismissal claims, covering past and future financial loss.
- Basic awards: A statutory award in unfair dismissal claims calculated by formula.
- Injury to feelings damages: Awards in discrimination claims to compensate for the emotional impact of discrimination.
- Reinstatement or re‑engagement: Instead of financial awards, tribunals may order an employer to reinstate a claimant or re‑engage them in comparable employment.
Tribunals cannot normally compensate for stress or upset in unfair dismissal claims unless there is a discrimination element.
Statutory Framework and Compensation Principles
Basic Awards in Unfair Dismissal
In unfair dismissal cases, if liability is established, the tribunal first considers a basic award, calculated in a formulaic way similar to statutory redundancy pay. It depends on:
- Length of service, up to a maximum.
- Age of the claimant at the dates used in the formula.
- Gross weekly pay, subject to a statutory cap.
For example, in recent years a statutory cap limits the weekly pay figure used in calculations (e.g., £719 from 6 April 2025).
The tribunal has discretion to reduce a basic award if the claimant's conduct before dismissal was such that it would be just and equitable to do so.
Compensatory Awards
The main element of compensation in unfair dismissal claims is the compensatory award, aimed at covering:
- Past financial losses, such as lost earnings from dismissal to the hearing.
- Future financial losses, such as loss of earnings until a new job is secured.
- Loss of contractual benefits, including pension contributions.
To decide what is just and equitable, tribunals assess the claimant's personal circumstances, including age, earnings, efforts to mitigate loss by seeking new employment, and any other financial benefits lost because of the dismissal.
There is a statutory cap on compensatory awards in ordinary unfair dismissal claims: the lower of one year's gross pay or a fixed statutory amount (for example, £118,223 after 6 April 2024).
Discrimination Compensation
In discrimination cases, tribunals may award damages for:
- Financial loss, similar to unfair dismissal.
- Injury to feelings to recognise the emotional impact of discrimination.
There is no statutory cap on awards for discrimination claims, meaning compensation can be uncapped where liabilities are established.
How Judges Assess Compensation Amounts
Schedule of Loss
Claimants are typically asked to prepare a schedule of loss, a document setting out the losses they have suffered and the amount of compensation sought. This helps the tribunal understand the scope of financial loss being claimed and the rationale for the figure.
Past and Future Loss Calculations
Tribunals evaluate:
- Past losses: earnings and benefits lost up to the date of the hearing.
- Future losses: an estimate of likely future financial loss, taking account of efforts to mitigate, such as securing new employment.
Estimates for future loss are inherently speculative and tribunals carefully assess whether claimed periods without work are reasonable, based on job prospects and evidence of mitigation efforts.
Loss of Statutory Rights
In unfair dismissal claims, claimants may also receive a modest award for the loss of statutory rights, typically a fixed figure reflecting loss of legal protections due to dismissal.
Adjustments to Awards
Tribunals may adjust awards:
- Uplifts: For unreasonable failure to follow statutory disciplinary or grievance procedures, tribunals may increase a compensatory award (for example, by a percentage).
- Reductions: If a claimant is partly to blame for their loss, tribunals may reduce awards on the basis of contributory conduct.
Other adjustments may be made to reflect statutory considerations or equitable fairness, but punitive damages are generally not permitted.
Time Limits and Process
Remedy Hearing
If a tribunal decides liability but not the amount of compensation at the liability hearing, it may schedule a separate remedy hearing to determine compensation.
Time Limits
Claims must be brought within strict time limits, normally three months less one day from the date of the act complained of (such as dismissal) unless an extension is agreed or covered by Early Conciliation with ACAS before issuing the claim. Failure to comply can extinguish rights to compensation. (This process is well‑established but not always straightforward.)
Practical Considerations
Tax and Benefits
Many tribunal awards have tax treatment: compensation for unfair dismissal, redundancy and discrimination up to a statutory amount (often £30,000) is generally tax‑free, but other payments like unpaid wages are taxable.
If a claimant claims benefits following dismissal, a tribunal's award may involve recoupment to repay benefits, with employers required to pay the benefit amount back to the government, effectively reducing net compensation.
Enforcement
If an employer fails to pay an award within a set period after judgment, the claimant may be entitled to interest on the award and enforcement action to compel payment.
Key Takeaways
Tribunal judges calculate compensation by carefully applying statutory formulas and principles to reflect actual financial loss and legal rights affected by the employer's conduct. Basic awards and compensatory awards are central in unfair dismissal cases, while discrimination claims may include uncapped injury to feelings awards. Judges evaluate personal circumstances, evidence of loss and mitigation, and apply statutory limits and adjustments to determine a fair and just award. Understanding how tribunals assess compensation helps claimants and respondents prepare robust cases and manage expectations about potential outcomes.
