Employment law update: Rising compensation limits
From 6 April 2026, key statutory compensation limits are increasing – and this year, there’s an even bigger change on the horizon which employers need to be aware of.
What’s changing?
- The statutory cap on a week’s pay (used for redundancy pay and the basic award) is increasing from £719 to £751
- The maximum compensatory award for unfair dismissal is rising to £123,543
- From 1 January 2027, the cap on unfair dismissal compensation is set to be removed entirely.
Why this matters
These changes significantly increase potential liability – particularly when combined with uncapped awards from 2027. For employers, this means:
- Higher value tribunal claims
- Increased settlement costs
- Greater financial risk when processes go wrong.
Common pitfalls to watch for
- Using outdated figures in redundancy calculations or settlement agreements (note at the time of writing the government have not yet updated the gov.uk website online redundancy calculator!)
- Focusing on the pay out, not the process – most claims are won or lost on fairness, not just numbers
- Poor documentation – a lack of a clear and documented rationale for decisions can be costly
- Underestimating risk post-2027 – once the cap is removed, high earners could bring significantly larger claims.
What should employers be doing?
- Reviewing redundancy and dismissal procedures for robustness
- Training managers on fair process and handling difficult conversations
- Sense-checking potential exposure in exit scenarios
- Planning ahead for the removal of the unfair dismissal cap.
Why speak to an HR consultant?
With rising limits and upcoming reform, the margin for error is shrinking. Early advice can help you:
- Navigate complex and evolving legislation
- Minimise legal and financial risk
- Ensure fair, consistent and defensible outcomes.
If you’re managing exits, considering a restructure, or just want to pressure-test your approach, now is the time to act. Contact us for more advice HR services. Get HR support from our experienced consultants
