Changes to Compensation Limits Announced – What Does Your Business Need to Know?

The annual increase to limits on certain tribunal awards and employee entitlements has been announced. Here are three things to have on your radar:

1. The maximum compensatory award for unfair dismissal is increasing
2. Statutory redundancy pay will increase for some employees
3. The statutory guarantee pay limit is increasing

1. The maximum compensatory award for unfair dismissal is increasing

The maximum compensatory award for unfair dismissal is increasing from £118,223 to £123,543. 

That said, it is worth bearing in mind that the majority of employees will not be able to receive sums in the region of that amount. This is because the rules regarding the compensatory award mean that the employee is limited to receiving whichever is the lower of £118,223 (increasing to £123,543) or one year’s salary. However, there are some exceptions, for example, whistleblowing cases, where there is no limit on the amount of compensatory award that can be ordered.

It is also important to bear in mind that one of the forthcoming changes that will be brought in by the Employment Rights Act 2025 is the removal of the statutory caps on the compensatory award for unfair dismissal. This is expected to take place for dismissals occurring in or after January 2027.

2. Statutory redundancy pay will increase for some employees

This is because the limit on a week’s pay, which is relevant for calculating statutory redundancy pay, is increasing from £719 to £751.

3. The statutory guarantee pay limit is increasing

The statutory guarantee pay limit is increasing from £39 to £41 per day (subject to a maximum of five days’ guarantee pay in any three months).

Statutory guarantee pay is most commonly payable when an employee has a workless day because they are laid-off by their employer or they are placed on short time working. If you are considering taking such action, it is important to seek advice on the facts of your situation before doing so.

When are the increases happening?

The new limits will apply where the event that gives rise to the award or payment occurs on or after 6^th April 2026. If you have any employment law matters you would like assistance with, please do not hesitate to contact us, as we are happy to help.