Employment Tribunal Compensation Caps from 6 April 2026
The government has confirmed the annual uprating of statutory compensation limits under the Employment Rights (Increase of Limits) Order 2026. The changes take effect for dismissals where the effective date of termination falls on or after 6 April 2026.
The maximum compensatory award for unfair dismissal will rise from £118,223 to £123,543. The statutory cap on a week’s pay will increase from £719 to £751.
These figures apply across England, Wales and Scotland and form part of the standard annual review linked to inflation.
How the new limits apply in practice
The compensatory award for unfair dismissal remains subject to a dual cap. Compensation is limited to the lower of the statutory maximum or 52 weeks’ gross pay. For higher-earning employees, the statutory cap continues to operate as the primary constraint on liability. For lower-paid employees, actual earnings over the relevant period will determine the award.
The increase to £123,543 therefore raises the ceiling for higher-value claims, particularly those involving senior employees or long periods of loss. It does not alter the underlying principles used by tribunals when assessing loss, including mitigation, contributory fault and Polkey reductions.
The increase in the statutory cap on a week’s pay to £751 has wider application beyond unfair dismissal compensation. It feeds directly into the calculation of the basic award for unfair dismissal, statutory redundancy payments and other tribunal awards that rely on a capped weekly pay figure.
For employers, the practical effect is an increase in baseline liabilities across routine workforce events, particularly redundancy exercises. While the increase per employee is relatively modest, the cumulative cost can become material where multiple employees are affected or where large-scale restructuring is taking place.
DMS Perspective
The compensation cap uplift itself is predictable (it is an annual event), however, it does also coincide with the broader, more substantial reforms under the Employment Rights Act 2025, including proposed changes to unfair dismissal compensation.
The government has indicated that the statutory cap on the compensatory award may be removed for dismissals occurring in or after January 2027, subject to final legislative confirmation. If implemented, this would remove the current ceiling on liability and allow compensation to reflect full financial loss in qualifying cases.
For employers, legal risk around dismissal decisions becomes even more acute. Internal processes around conduct, capability and redundancy selection will require closer scrutiny. Early legal assessment of dismissal risk is likely to become more important, particularly in higher-paid roles where potential exposure may increase significantly once the cap is removed.
Need Assistance?
For advice on how these changes affect your organisation, or to review your current HR framework, contact us or book a fixed-fee consultation to put your questions to one of our experts.
