Basic Award Unfair Dismissal

Basic Award Unfair Dismissal (s.119 ERA 96)

The basic award is equivalent to a statutory redundancy payment and is calculated according to the set formula below:

Age Factor

The age factor is one week's compensation for each year of work between 22 and 40; 1.5 weeks for each year of employment beyond 41; Each year of work under 22 earns half a week.

Service

Service is the length of time in complete years an employee has been continually employed and is counted backwards from the EDT (as defined in s.97 ERA 96) to a maximum of 20 years.

Weeks Pay

Week’s pay is the actual gross weekly pay up to the maximum of £571, which is the Tribunal rates and compensation limits from 6 April 2023. If an employee's actual pay is less than £571 per week then it is the actual pay which is used in calculating the basic award.

Reductions to the Basic Award

The basic award is not compensation for loss of earnings; therefore, it is never reduced on the basis of failure to mitigate. This means that if the employee obtains another job immediately, he will still receive the basic award. The basic award is still subject to some other reductions.

1. Where the employee’s conduct contributed to his dismissal (s.122(2) ERA 96), the Tribunal can reduce the award by up to 100% to reflect the fact that the employee brought the dismissal on himself.

2. If it is otherwise ‘just and equitable’ to reduce the award. For example, it may be just and equitable when the employer discovers misconduct of the employee after dismissal.

3. Where the employee has acted unreasonably in refusing an offer of reinstatement by the employer, this too will reduce the basic award (s122(1) ERA 96).

4. Where the reason for dismissal is redundancy, any redundancy payment awarded by the Tribunal or paid by the employer is deducted from the basic award. Since a statutory redundancy payment is calculated in the same way as the basic award, the employee only receives the redundancy payment plus the compensatory award (if any).

Basic Award

Calculation

This is a statutory award calculated like a redundancy payment. It's based on age, length of continuous service (capped at 20 years), and a week's pay (subject to a statutory cap). Rates vary by age (e.g., 1.5 weeks' pay for 41+, 1 week for 22-40, 0.5 for under 22).

Minimum Basic Award

A minimum basic award applies for certain automatically unfair dismissals, such as those related to health and safety activities or trade union membership.

Reductions

The basic award can be reduced if the claimant's conduct before dismissal (even if unknown to the employer at the time) makes it just and equitable to do so (from zero to 100%). It can also be reduced for unreasonable refusal of a reinstatement offer or offset by redundancy pay received.

Taxation Issues

Both basic and compensatory awards are generally taxable as termination payments. Up to £30,000 may be tax-free, with the balance liable to income tax and employer NICs. The compensatory award is calculated on net pay but may need to be "grossed up" for tax purposes.