How awards of compensation are worked out

Basic award

The basic award is calculated by adding up the following amounts, but only continuous employment within the last 20 years can count:

• 1½ weeks' pay for each complete year of employment when an employee was between the ages of 41 and 65 inclusive;
• 1 week's pay for each complete year of employment when an employee was between the ages of 22 to 40 inclusive;
• ½ week's pay for each complete year of employment when an employee was below the age of 22.

The maximum number of weeks' pay that may be awarded is 30. There is also a maximum week's pay that can be used to calculate the award. (The limit on a week's pay may vary from year to year: the current figure is given in the document Limits on Payments (PL827)).

In trade union, health and safety, employee representative, workforce representative and occupational pension scheme trustee cases (see Interim Relief), there is a minimum figure for the basic award. (This minimum may vary from year to year: the current figure is given in the document Limits on Payments (PL827)).

The basic award, including the minimum award in trade union and health and safety cases, can be reduced if the employee:

• contributed to some extent to the dismissal, or his or her conduct prior to the dismissal otherwise justified the reduction;
• has already been awarded or has received a redundancy payment;
• was within a year of age 65 at the effective date of termination;
• unreasonably refused an offer of reinstatement or unreasonably prevented the employer from complying with an order of reinstatement;
• has been awarded any amount in respect of the dismissal under a designated dismissal procedures agreement.

Compensatory award

This award compensates the employee for the loss suffered as a result of the dismissal insofar as the employer is responsible for this loss. As well as covering loss of earnings between the dismissal and the hearing and an estimate of future loss, the tribunal will also consider matters such as loss of pension and other rights and any reasonable expenses incurred by the employee as a result of the dismissal.

The compensatory award is an amount the tribunal considers just and equitable in the circumstances, but there is a maximum compensatory award in cases of unfair dismissal. (The maximum compensatory award may vary from year to year: the current figure is given in the document Limits on Payments (PL827)).The tribunal will reduce the award if it finds that the employee was partly to blame for the dismissal or the employee did not mitigate his or her loss: for example, by failing to make a reasonable effort to obtain another job. Certain payments made by the employer to the employee, for example wages in lieu of notice or an ex gratia payment, will normally result in a reduced compensatory award. The compensatory award will also be reduced by the amount of the employee's earnings from any other employment between the dismissal and the tribunal hearing.

Tribunals have the power to reduce the compensatory award where employees have not made use of an internal appeals procedure whose existence they were informed of at or shortly after the time of dismissal. Similarly the tribunal can make a supplementary award where employers have not allowed the employee to use an appeal procedure provided by them. The reduction or supplementary award can be subject to a maximum of two weeks' pay.

Compensation awards in unfair dismissal cases where the reason for the dismissal is that the dismissed employee made a protected disclosure under the Public Interest Disclosure Act 1998, or took action relating to health and safety are not subject to a maximum.

Additional Award

This award compensates the employee for the additional loss suffered because of the employer's failure to comply with a tribunal's order for reinstatement or re-engagement. The additional award will be between 26 and 52 weeks' pay. There is a maximum week's pay that can be used to calculate the additional award. (The limit on a week's pay may vary from year to year: the current figure is given in the document Limits on Payments (PL827)).

Note: Employment tribunals may however exceed these limits if the total compensation awarded (apart from the basic award) would otherwise be less than the arrears of pay element of the original award with which the employer failed to comply.

Interest on tribunal awards

Legislation provides that an employer who does not pay the compensation awarded by the tribunal within 42 days of the tribunal's decision, will be required to pay simple interest on the amount outstanding.

However, in relation to awards in cases of discrimination on the grounds of sex, race and disability, interest begins to accrue from the day after the day on which the tribunal's decision is sent to the parties. However no interest will be payable if the full amount of the award is paid to the complainant within 14 days of the decision being sent out.