Increase in Tribunal Compensation Limits

As of 6 April, 2024, the employment tribunal compensation limits are scheduled to increase.

The adjustments are contained in the Employment Rights (Increase of Limits) Order 2024, also referred to as SI 2024/213.

They aim to align compensation figures with the most current economic data to ensure that they accurately reflect the current economic realities and ensure fair treatment for employees within the realm of employment law.

Employment Lawyer, Mohammed Balal considers these changes and how they will affect employment claims.

Increase in maximum weekly salary

One notable modification is the rise in the maximum amount of a week’s salary, a fundamental measure used in calculating various awards including mandatory redundancy benefits and basic awards for wrongful dismissal.

The new figure will be £700, which represents a significant rise from the current amount of £643. This change is a reflection of the changing economic situation and the associated necessity to recalibrate compensation criteria in order to retain their effectiveness.

Rise in maximum compensatory award

We also expect to see an increase in the maximum compensatory award for unfair dismissal cases.

It is anticipated that the award will rise substantially from its current level of £105,707 to £115,115.

This adjustment signifies a recognition of the potential financial repercussions associated with wrongful dismissal and aims to provide more equitable compensation to affected employees.

Alignment with economic data

These compensation limitations are being revised as a result of a careful examination of economic developments, in particular the retail prices index, which saw a significant rise of 8.9% between September 2022 and September 2023.

This rise highlights the need for recalibration of compensation criteria in order to reflect the current economic realities and to maintain equal results in the settlement of employment disputes.

What are the current limits for employment tribunal compensation?

If a tribunal determines that an employee has been unfairly terminated from their job, they will be entitled to compensation. This compensation involves two parts:

• A fixed sum determined by a specific formula, known as the ‘basic award’.
• Compensation for the financial losses incurred due to losing their job referred to as the ‘compensatory award’.

The amount an employee can receive for the basic award is influenced by:

• Their length of employment with your company at the time of dismissal.
• Their age at the time of dismissal.
• Their gross weekly pay before deductions for tax and national insurance.

There’s a maximum limit for the weekly pay considered. For dismissals on or after April 6, 2023, the limit is £643 per week. If the gross weekly pay exceeds £643, an employee can claim only up to that amount per week.

For dismissals between April 6, 2022, and April 5, 2023, the limit is £571 per week.

How is compensation awarded at employment tribunals?

To work out how much you may have to pay your former employee at an Employment Tribunal, you should calculate their weekly or monthly income after deductions for tax and national insurance, considering any regular overtime and bonuses.

If they were paid weekly, determine their weekly earnings; if monthly, calculate monthly earnings.

You should also include the value of any other benefits that you provided for the employee. These may include:

• Pension contributions
• Free or subsidised accommodation
• The value of using a company car
• The cost of equivalent company medical insurance

Once you’ve determined their weekly or monthly losses, you need to multiply that by how long they may be expected to be out of work.

The losses they’ve had up to the calculation date are called ‘past losses,’ while those expected until they secure a new job are referred to as ‘future losses.’

How much are the tribunal compensation limits increasing?

The basic award is determined based on the employee’s age, length of service, and weekly pay. Currently, the weekly pay is capped at £643, but this will rise to £700 starting April 6, 2024.

If an employee’s gross weekly pay is below this cap, their regular weekly pay amount is used. Since the basic award follows the same calculation as statutory redundancy payment, the weekly pay limit also applies to statutory redundancy payment calculations.

The compensatory award aims to restore the claimant to the financial position they would have been in if they hadn’t been unfairly dismissed. It is capped at either 52 weeks’ pay or £105,707, whichever is lower.

This cap will increase to £115,115 from April 6, 2024. However, certain claims, such as those related to automatic unfair dismissal like whistleblowing, have no compensation limit.

These increases apply to events leading to compensation entitlement, typically the termination date, occurring on or after April 6, 2024.

The previous compensation figures in effect between 2023 and 2024 will still apply for cases where the relevant event occurred before that date.

How can Butcher & Barlow help reduce the impact on employers?

The increase in tribunal compensation limits potentially increases the financial liabilities for employers who are found to have wrongfully dismissed an employee.

Employers may need to adjust their operational practises and budgetary allowance to accommodate the potential risk. This could involve reviewing and updating employment policies and procedures to mitigate the risk of unfair dismissal claims.

Employers may also need to prioritise risk management strategies to reduce the likelihood of such claims being brought in the first instance and invest in training programmes for managers and supervisors to ensure compliance with employment laws.

The Butcher & Barlow Employment Law Team can undertake a full audit of your practices and policies with a view to mitigating the risk of an unfair dismissal claim being brought in the first instance.

The Team can also educate and train managers and supervisors on ways to reduce conflict in the workplace, improve the working environment, and deal with conflicts and grievances.

If you would like to speak to our team about a full HR Audit of your business, Mohammed can be contacted on 0161 764 4062 or emailed on mbalal@butcher-barlow.co.uk.