Compensation limits and statutory payments – annual increases announced

As the end of the financial year approaches, employers are once again preparing for a series of annual adjustments affecting payroll, HR processes and statutory payments.

April is always a key point in the employment law calendar, but this year is particularly significant due to the wider reforms introduced by the Employment Rights Act 2025, many of which begin to take effect over the coming months.

The annual changes to compensation limits and statutory payments for the forthcoming tax year (April 2026 to April 2027) have now been published. The Employment Rights (Increase of Limits) Order 2026 was made on 16 March 2026, laid before Parliament on 18 March 2026 and will increase the compensation limits and minimum awards applicable to certain employment tribunal awards, as well as other sums payable under employment legislation, with effect from 6 April 2026.

Key changes include:

• Increase in upper limit on unfair dismissal compensatory award: increasing from £118,223 to £123,543 (or 52 weeks’ pay, whichever is lower). This is expected to be the final increase as the compensatory award cap is to be removed by Section 25(3) of the Employment Rights Act 2025, due to be effective from 1 January 2027.
• Increase in cap on a week’s pay: the “week’s pay” calculation is used for calculating statutory redundancy payments and the basic award for unfair dismissal. It will rise from £719 to £751.
• Increase in Compensation for failure to allocate and pay tips fairly: increasing from £5,135 to £5,366. If an employer fails to allocate tips fairly, fails to have a written policy, or fails to create a record of tip distribution, the tribunal may award compensation to the affected worker for financial loss. For employers, the increased limit reinforces the need to maintain a compliant tipping police, ensure clear record keeping, and following the statutory Code of Practice on Fair and transparent tip
• Increase in statutory guaranteed payment: a statutory guaranteed payment is payable to employees when they are not provided with work by their employer on a day they would normally be required to work. This is increasing from £39 to £41 per day. SGPs are also limited to five days in any period of three months for a full-time employee, or pro-rata for an employee who works fewer than five days a week.
• Increase in “minimum basic award” for certain automatically unfair dismissals (including health and safety, working time, employee representation, trade union membership, and pension trustee reasons): this will rise from £8,763 to £9,157.

Additionally, the Social Security Benefits Up-Rating Order 2026 will increase the rate of payment for a range of statutory leave entitlements. With the effect from 5 April 2026 including:

• Statutory Maternity Pay (after the first 6 weeks) will be £32 per week (increased from £187.18) or 90% of the employee’s average weekly earnings, whichever is lower.
• Statutory Adoption Pay (after the first 6 weeks), Statutory paternity Pay, Statutory Shared Parental Pay, Statutory Neonatal Care, Statutory Parental Bereavement Pay and Maternity allowance will be £194.32 per week.
• Statutory Sick Pay will rise from £118.75 to £123.25 per week. (By virtue of Section 10 of the Employment Rights Act, the three day waiting period for statutory sick pay will be abolished so that sick pay will be payable from the first day of sickness absence. This change is also expected to come into force on 6 April)

A Significant Year End for Employers

The transition into the 2026/27 tax year is more than a routine annual update. It marks one of the most substantial periods of change in recent employment law history. The Employment Rights Act 2025 ushers in a range of reforms phased across 2026 and 2027.

For employers, this means that financial year‑end planning should factor in both the new statutory limits and the broader structural changes. Payroll teams may need to reconfigure systems, HR teams may need to refresh policies and handbooks, and managers may require updated guidance on handling sickness absence, dismissals, redundancy exercises, and family‑related leave.

April often brings administrative pressure, but this year the stakes are higher. Early preparation will help ensure a smooth transition and reduce the risk of non‑compliance across the organisation.

This update contains general information only and does not constitute legal or other professional advice. For further information and advice on this topic, please contact a member of our Employment team.