This guide is maintained as a current resource for September 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.
Detailed guide to limits on compensation for redundancy and unfair dismissal in England and Wales, explaining statutory caps on redundancy pay, basic and compensatory awards, exceptions, mitigation, recent compensation limits and planned reforms.
In England and Wales, employees have statutory rights to redundancy pay and the ability to challenge unfair dismissal before an Employment Tribunal. Although tribunals can award compensation when employers breach legal protections, these awards are subject to statutory limits that govern how much an individual can receive. Understanding those limits, how they apply to redundancy and unfair dismissal claims, and where exceptions arise is essential for employees, employers, solicitors, HR professionals and tribunal claimants alike. This article explains the current compensation cap framework, how awards are calculated, key differences between types of claims and what changes are on the horizon as of 2025.
Statutory Redundancy Pay Limits
Basic Redundancy Entitlement
Statutory redundancy pay compensates employees dismissed on the grounds of genuine redundancy where they have at least two years' continuous service. The amount is calculated using:
- age at the date of redundancy,
- length of continuous service,
- weekly pay subject to a statutory cap.
From 6 April 2025, the limit on a week's pay (the rate used in redundancy calculations) is £719. The statutory redundancy formula uses this cap to work out the basic entitlement, and the maximum statutory redundancy payment is £21,570 for employees with long service and the highest rate of weekly pay. These figures apply where the redundancy arises on or after 6 April 2025.
Redundancy Consultation Penalty
If an employer fails to comply with collective redundancy consultation duties (typically triggered where 20 or more employees are being made redundant), the tribunal can award a protective award of up to 90 days' gross pay per employee, again calculated using the statutory pay cap where relevant.
Compensation for Unfair Dismissal
Unfair dismissal claims can result in two primary awards: the basic award and the compensatory award. Both are subject to statutory caps, though the limits differ.
Basic Award
The basic award in an unfair dismissal claim uses the same formula as statutory redundancy pay and is therefore also based on an employee's age, length of service and weekly pay up to £719. As a result, the maximum basic award after 6 April 2025 is £21,570.
Compensatory Award
The compensatory award seeks to reimburse an employee for actual financial loss caused by the unfair dismissal, including loss of earnings, loss of benefits and statutory rights. This award is capped:
- at the lower of 52 weeks' gross pay or a statutory maximum, which from 6 April 2025 is £118,223.
This cap applies to ordinary unfair dismissal claims in most circumstances, meaning even if lost earnings exceed one year's pay, tribunals will not award more than the statutory limit.
Exceptions to the Compensatory Cap
There are limited exceptions where the compensatory cap does not apply:
- dismissals for reasons related to health and safety activities,
- dismissal after making a protected disclosure (whistleblowing),
- dismissals tied to trade union representation or certain employee representative duties.
In these cases, tribunals can award unlimited compensation for the compensatory element, reflecting the serious policy interest in protecting these rights.
Additional Awards for Non‑Compliance
If a tribunal orders reinstatement or re‑engagement and the employer refuses or fails to comply, an additional award of compensation can be made. The statutory range for such an award is generally between 26 and 52 weeks' pay, subject to the weekly pay cap (£719).
Interaction Between Redundancy and Unfair Dismissal Awards
In practice, redundancy and unfair dismissal awards use similar building blocks (statutory weekly pay and years of service), but their purposes differ:
- Statutory redundancy pay is a minimum legal entitlement on redundancy and is capped by service and weekly pay.
- Unfair dismissal compensation focuses on actual financial loss and is capped by statutory maximums for the compensatory component.
Where a dismissal is both a redundancy and unfair (for example, if redundancy procedures are flawed), claimants may be entitled to statutory redundancy pay plus compensatory unfair dismissal awards, each calculated under the appropriate limit. Tribunals will consider mitigation (whether the claimant has sought alternative work) and statutory deductions in both contexts.
Current and Future Legal Developments
As of late 2025, proposed reforms in UK employment law aim to remove the cap on compensatory awards for unfair dismissal in some circumstances. Under proposals in the Employment Rights Bill, the statutory cap could be replaced by unlimited remedies for ordinary unfair dismissal, although implementation timing and detailed legislative provisions continue to evolve. These reforms are intended to better align compensation with actual loss, particularly for high‑earners whose earnings exceed current caps.
Given potential future changes, both claimants and employers should monitor legislative developments and seek up‑to‑date professional advice when assessing likely compensation exposure.
Practical Considerations and Risks
Mitigation of Loss
In unfair dismissal claims, tribunals require claimants to take reasonable steps to mitigate their losses, typically by searching for new employment. If the claimant fails to demonstrate reasonable mitigation efforts, the compensatory award can be reduced accordingly.
Timing and Effective Date
The date of termination or the event giving rise to the claim determines which statutory limits apply. For dismissals before 6 April 2025, earlier compensation limits would still govern a claim, even if the tribunal decision occurs later.
Cumulative Awards
Some awards (for example, statutory redundancy pay and basic unfair dismissal awards) may overlap in calculation formulae but are conceptually distinct. Limit understanding and accurate calculation help claimants and employers manage expectations and settlement negotiations.
Common Questions
Is redundancy pay capped?
Yes. Statutory redundancy pay is limited by the weekly pay cap (currently £719) and a maximum overall statutory payment of £21,570 for employment termination on or after 6 April 2025.
Can I receive more than £118,223 for unfair dismissal?
Under current law, the compensatory award in ordinary unfair dismissal is capped at the lower of 52 weeks' pay or £118,223. However, if the dismissal relates to whistleblowing, health and safety activities or certain representative duties, the compensatory element can be uncapped.
Do proposed reforms mean caps will go soon?
Yes, reforms in the Employment Rights Bill aim to remove the unfair dismissal compensatory cap entirely, potentially allowing unlimited awards based on actual loss, but these proposals are subject to parliamentary approval and implementation timelines.
Final Thoughts
Compensation for redundancy and unfair dismissal in England and Wales is regulated by clear statutory limits designed to balance claimant protection with predictability for employers. Redundancy pay and the basic award use a capped weekly pay formula, while the compensatory award for unfair dismissal is subject to a statutory maximum of the lower of 52 weeks' gross pay or £118,223 (as of April 2025), with notable exceptions for certain protected categories. Understanding these limits, how they apply to specific claims, and the potential for future reform helps claimants assess realistic outcomes and informs employers in risk assessment and settlement strategy.
