TL;DR: The Fair Work Commission estimates what the employee would have earned had they not been dismissed, deducts income earned since, and adjusts for contingencies, tax, and misconduct. The payout cannot exceed the lower of 26 weeks’ pay or $95,050 for dismissals from 1 July 2026. According to the Commission, the median award is 5 to 7 weeks’ pay.
Last updated 11 October 2026.
Key takeaways
- According to the Fair Work Commission, the compensation cap is $95,050 for dismissals on or after 1 July 2026, which is half the $190,100 high income threshold.
- The maximum any employee can receive is the lower of half their annual wage and the cap, so most people’s personal limit is 26 weeks’ pay.
- The Commission reports a median award of 5 to 7 weeks’ pay, and fewer than 0.4% of applicants receive the maximum.
- Compensation covers lost income only. The Commission cannot order compensation for shock, distress, hurt, or humiliation.
- Around three quarters of unfair dismissal cases settle at or before conciliation, so most payouts are negotiated rather than ordered.
What is the maximum unfair dismissal payout in 2026-27?
The maximum unfair dismissal payout is the lower of two amounts: the pay the employee received in the 26 weeks before dismissal, or the compensation cap. According to the Fair Work Commission, the cap is $95,050 for a dismissal on or after 1 July 2026. For a dismissal between 1 July 2025 and 30 June 2026, it was $91,550.
Understanding how the Fair Work Commission calculates compensation for an unfair dismissal is handy to know. When you are weighing up whether to dismiss someone, it is worth knowing how much they could be awarded if they make a claim. So start with the ceiling, because it frames the estimate, the deductions, and the final order.
The cap comes from section 392(5) of the Fair Work Act 2009. It equals half the high income threshold immediately before the dismissal. The Commission confirms the high income threshold is $190,100 from 1 July 2026, up from $183,100, and that it changes on 1 July each year. As a result, the cap moves every July too, and the date the dismissal takes effect decides which figure applies.
In practice, half an employee’s annual wage is lower than the cap for anyone earning under $190,100. For example, a manager on $120,000 has a personal limit of $60,000, not $95,050. Only employees earning above the threshold reach the full cap, and they can claim only if an award or enterprise agreement covers them.
Does the Commission reinstate an employee before awarding compensation?
Yes, reinstatement comes first. Section 390 of the Fair Work Act lets the Commission order compensation only if it is satisfied reinstatement is inappropriate. In practice, reinstatement is uncommon, and the remedy in most successful cases is money. Typical reasons include a closed business, an employee too ill to work, or a working relationship that has broken down.
The Fair Work Commission lists four common reasons it might not order reinstatement. The business may no longer operate. Equally, the employee may be unable to work because of illness or injury. The employer and employee may not be able to work together because trust has gone, or the employer would probably dismiss the employee again.
So for most employers, the realistic question is not whether they will have to take the person back. Instead, it is how much they might have to pay. That is why the calculation matters more than the reinstatement rules when you plan a dismissal.
What can compensation be awarded for?
Compensation can be awarded only for income the employee lost because of the unfair dismissal. According to the Fair Work Commission, it cannot be ordered for pain and suffering, shock, distress, hurt, or humiliation. An unfair dismissal order is an economic remedy, not a payment for how the dismissal felt.
An order for compensation is primarily designed to replace the wages the person would have earned. The Commission treats remuneration broadly here. If the employee would have stayed for several years, the lost remuneration over that period can include long service leave and potential bonuses.
The Commission can also reduce or refuse compensation. For instance, it may award nothing where the employee suffered no financial loss, such as someone who walked straight into a better-paid job. It must also reduce the amount where the employee’s misconduct contributed to the decision to dismiss them.
How is unfair dismissal compensation calculated?
The Fair Work Commission generally applies the Sprigg formula. It estimates the pay the employee would have received had they stayed, deducts income earned since the dismissal, deducts an amount for contingencies, adjusts for tax, and then applies the compensation cap. Misconduct and a failure to look for work can reduce the result further.
The formula comes from a 1998 case, Sprigg v Paul’s Licensed Festival Supermarket. According to the Commission’s unfair dismissals benchbook, it was decided under earlier legislation but continues to be applied under the Fair Work Act. Where it produces a figure that looks clearly excessive or clearly inadequate, the Commission reassesses its assumptions.
Section 392(2) also lists the matters the Commission must weigh. They include the effect of the order on the viability of the employer’s business, the employee’s length of service, and the employee’s efforts to mitigate their loss.
Step 1: How long would the employee have stayed?
The first thing the Fair Work Commission considers is how long the employee would likely have remained employed had they not been dismissed. Often it will be indefinite, but sometimes not. For instance, performance or behavioural issues that would have led to dismissal anyway, or a plan to resign, can shorten that period and limit the compensation payable.
The Commission also looks at how long the employee worked for the employer, their work history, and any performance or behaviour issues. Suppose an employee had a documented final warning two months before an unfair dismissal. In that case, the Commission may decide they would only have lasted another few months, which shrinks the starting figure.
Step 2: What is deducted from the starting figure?
The Commission deducts any income the employee has earned since the dismissal. If they find another job on equal or better pay, they would only get compensation up to the point they start the new job. However, if they start a new job on less pay, they could get compensation for the pay difference for a period of time.
Workers compensation payments are deducted, but income support payments are not. The Commission must also consider the employee’s efforts to find a new job. Those efforts need to be reasonable, which the Commission describes as deliberate, positive steps to find work. If the person makes no effort, their compensation could be reduced accordingly.
Step 3: Contingencies, tax, misconduct, and the cap
Next, the Commission deducts an amount for contingencies, meaning events that might have changed the employee’s earnings anyway, such as illness or a downturn. Sprigg used a 25% discount, but the benchbook stresses that figure is not a general rule. The amount is then adjusted for tax, because compensation is usually taxed as an employment termination payment.
If misconduct by the employee contributed to the decision to dismiss them, the Commission must reduce the amount on account of that misconduct. Finally, the result is compared against the cap. Anything above the lower of 26 weeks’ pay and $95,050 is cut back to that limit.
An example of calculating unfair dismissal compensation
Our team looked at a fictional person named Daisy, who earned $50,000 per year before she was dismissed by her employer. Half of Daisy’s annual salary is $25,000. The compensation cap for 2026-27 is $95,050. Because the lower of these two amounts applies, Daisy’s personal cap is $25,000.
What we see in most cases is employees receiving less than the maximum possible amount. For Daisy, the Commission determines that fair compensation is 6 weeks’ pay, which equals $5,770. Since this amount is below her $25,000 cap, the Commission orders the employer to pay Daisy $5,770. The Commission’s own worked example uses the same figures.
An example for a high earner covered by an enterprise agreement
Now take Sam, who earned $200,000 a year. That is above the $190,100 high income threshold, but an enterprise agreement covers Sam’s role, so Sam is still protected. Half of Sam’s salary is $100,000, which is higher than the cap, so Sam’s maximum is $95,050.
Even if the Commission calculated Sam’s loss at $100,000, it could only order $95,050. This mirrors the third example the Commission publishes. As a result, senior employees covered by an agreement are the group most likely to hit the dollar cap rather than the 26-week limit.
How do you estimate an unfair dismissal payout yourself?
You can estimate a payout with five numbers: weekly pay, how many more weeks the employee would likely have stayed, what they have earned since, a discount for contingencies, and the cap. Multiply, subtract, discount, and then compare the result with the lower of half their annual pay and $95,050.
No official unfair dismissal payout calculator exists, because the Commission weighs every case on its own facts. Still, the Sprigg steps turn into simple arithmetic. Take a fictional coordinator, Priya, on $1,800 a week, or $93,600 a year. The figures below are an illustration, not a prediction of what the Commission would decide.
- Anticipated period. Suppose the Commission finds Priya would have stayed another 20 weeks. That gives a starting figure of $36,000.
- Earnings since. She started a lower-paid job after 10 weeks and earned $15,000 over the remaining 10. The figure falls to $21,000.
- Contingencies. Assume a 10% discount for the chance her earnings would have changed anyway. The figure falls to $18,900.
- Cap. Half of Priya’s annual pay is $46,800, which is below $95,050, so her personal cap is $46,800. Because $18,900 sits under it, the cap does not bite.
The Commission would then adjust for tax and reduce the amount for any misconduct. So a realistic estimate for Priya is a little under $19,000, which is roughly 10 weeks’ pay. That sits above the median, mainly because the anticipated period was long.
What is the average unfair dismissal payout?
According to the Fair Work Commission, most employees receive only a small amount of compensation for unfair dismissal, and the median is between 5 and 7 weeks’ pay. Fewer than 0.4% of applicants receive the maximum. An employee does not always receive compensation, even when the Commission finds the dismissal was unfair.
Those numbers explain why the amounts in unfair dismissal claims do not tend to be high. For an employee on $90,000, 5 to 7 weeks’ pay is roughly $8,650 to $12,100 before tax. That is a real cost, but it is a long way from the cap.
The median also describes only the cases that reach an order. Most claims never get that far, which is why settlement figures matter just as much to an employer.
How much can an unfair dismissal claim cost an employer?
An unfair dismissal claim costs an employer the payout, if one is ordered or agreed, plus management time, legal advice, and the effect on the remaining team. According to the Fair Work Commission, around three quarters of cases settle at or before conciliation, so most employers negotiate a settlement rather than receive an order.
A conciliation settlement can be whatever the parties agree. The Commission lists options such as a financial settlement, a statement of service, a confidentiality and non-disparagement agreement, and a release from further claims. Once signed, the settlement creates a legal contract. Where the parties had no lawyer or paid agent at conciliation, there is usually a cooling off period of 3 business days.
Settlement amounts are private, so no official average exists. However, the order statistics shape the negotiation, because both sides know what the Commission tends to award. An employee with a strong case and a long anticipated period has leverage. An employer with documented warnings and a fair process has much more.
The law also protects a struggling business. Section 392(2) requires the Commission to consider the effect of an order on the viability of the employer’s enterprise, and section 393 allows a monetary order to be paid in instalments.
Who can claim unfair dismissal compensation?
According to the Fair Work Commission, an employee can claim if they work for a national system employer, have served the minimum employment period, and earn less than the high income threshold or are covered by an award or enterprise agreement. The minimum period is 6 months, or 12 months for a small business employer.
The high income threshold is $190,100 from 1 July 2026. An award-free employee earning more than that, with no enterprise agreement, cannot bring an unfair dismissal claim at all. Casual employees are protected only if they worked on a regular and systematic basis and reasonably expected that to continue.
Time limits are strict, short, and rarely extended. An employee must apply within 21 days of the dismissal taking effect. Independent contractors are not covered by unfair dismissal laws. A dismissal that is a genuine redundancy cannot be challenged as unfair either, which is why the redundancy process matters so much. For the three tests, see our guide to avoiding an unfair dismissal claim when making a position redundant.
How is a general protections claim different?
A general protections claim alleges the employee was dismissed for an unlawful reason, such as exercising a workplace right or taking sick leave, rather than harshly, unjustly, or unreasonably. According to the Fair Work Commission, its role is limited to dispute resolution. If the matter is not resolved, the next step is usually a federal court.
That difference matters for cost. The compensation cap in section 392 applies only to unfair dismissal remedies. Under section 545 of the Fair Work Act, a court hearing a general protections case can make any order it considers appropriate, including compensation for loss, with no equivalent cap. So keep in mind that general protections claims work differently, and the types of compensation available are much wider.
Both kinds of claim share the same 21-day deadline. In addition, the Commission says an employee cannot make a general protections dismissal application if they have already applied for unfair dismissal about the same dismissal. So record the dismissal date, the reason given, and any complaint raised beforehand, and get advice early if a dismissal touches on leave, a complaint, or another workplace right.
Is it better to deal with an unfair dismissal claim or a disruptive employee?
Neither is cheap, and the best answer is usually a fair process that avoids the choice. Compensation awarded in unfair dismissal claims has its limits, so the amounts do not tend to be high. Even so, a defensible dismissal, with clear warnings and a documented chance to improve, removes most of the risk.
Is it better to deal with a disruptive employee, or with a potential unfair dismissal claim? The honest answer has not changed: always be fair. It can be better to face a capped claim than to keep an employee who is creating internal issues for the whole team. However, a capped payout does not make an unfair process acceptable, and a well-run process often means no claim at all.
The records do most of the work. Keep the performance conversations, written warnings, responses, and support offered in one place, dated, and attached to the person’s file. When the Commission asks how long the employee would have stayed, that history answers the question. If those records currently live in inboxes and spreadsheets, a single employee record system makes them easier to produce.
If you want that history held in your HR system rather than scattered, Worknice is a sensible option for Australian organisations of roughly 50 to 1,000 employees. It keeps documents, paperwork, and employee records together against each person. However, it is not a legal advice service, so get employment law advice before any contested dismissal.
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The examples below explain how the maximum compensation amount is worked out.
Example 1 – compensation falls under the cap
Michael earned $50,000 per year before he was dismissed by his employer.
Half of Michael’s annual salary is $25,000. The compensation cap for 2025–26 is $91,550.
Because the lower of these two amounts applies, Michael’s compensation cap is $25,000.
In most cases, employees receive less than the maximum possible amount. For Michael, the Commission determines that fair compensation is 6 weeks’ pay, which equals $5,770. Since this amount is below his $25,000 cap, the Commission orders the employer to pay Michael $5,770.
Frequently asked questions
What is the maximum payout for unfair dismissal in Australia?
The maximum is the lower of the employee’s pay for the 26 weeks before dismissal and the compensation cap. According to the Fair Work Commission, the cap is $95,050 for dismissals on or after 1 July 2026. In practice, anyone earning under $190,100 a year has a personal maximum of half their annual pay.
What is the average unfair dismissal payout?
The Fair Work Commission reports that the median compensation for unfair dismissal is between 5 and 7 weeks’ pay. Fewer than 0.4% of applicants receive the maximum amount. Some employees receive nothing at all, even when the dismissal is found unfair, because they suffered no financial loss or found better-paid work quickly.
Can you get compensation for stress or humiliation from unfair dismissal?
No. The Fair Work Commission can only order compensation for lost income in an unfair dismissal claim. It cannot order compensation for pain and suffering, shock, distress, hurt, or humiliation caused by the dismissal. A general protections or discrimination claim heard by a court works differently and can cover a wider range of loss.
Is unfair dismissal compensation taxed?
Yes. The Fair Work Commission’s benchbook says compensation is usually taxed as an employment termination payment. When calculating the amount, the Commission first reduces lost pay by the tax the employee would have paid as wages, then adds back the tax payable on the compensation itself, so the employee is not left worse off.
How long do you have to lodge an unfair dismissal claim?
An employee must lodge an unfair dismissal application with the Fair Work Commission within 21 days of the dismissal taking effect. The same 21-day limit applies to general protections dismissal applications. Extensions are possible only in exceptional circumstances. For general protections applications, the Commission says about 80% of extension requests are denied.
About the author
Graham Martin is Co-founder of Worknice, an Australian HRIS built for mid-to-large organisations. He has spent more than a decade working with Australian People and Culture teams on HR systems, compliance, and payroll integration.
Related reading
- Avoiding an unfair dismissal claim in a redundancy: the three tests for a genuine redundancy, and why meeting them blocks an unfair dismissal claim.
- Notice periods in employment contracts: the NES notice table and four clauses that decide what you owe when employment ends.
- Contractor or employee?: the whole of relationship test, and why a contractor found to be an employee gains unfair dismissal rights.
- HR document management: how contracts, warnings, and signed paperwork are stored against each employee.
Sources
- Fair Work Commission, “Compensation for unfair dismissal”. Last updated 1 July 2026. Retrieved 11 October 2026: https://www.fwc.gov.au/job-loss-or-dismissal/unfair-dismissal/possible-results-unfair-dismissal-claims/compensation-unfair
- Fair Work Commission, “The formula to calculate compensation”. Last updated 1 July 2026. Retrieved 11 October 2026: https://www.fwc.gov.au/job-loss-or-dismissal/unfair-dismissal/possible-results-unfair-dismissal-claims/compensation-0
- Fair Work Commission, Unfair Dismissals Benchbook, “Calculating compensation”. Last updated 1 July 2026. Retrieved 11 October 2026: https://www.fwc.gov.au/calculating-compensation
- Fair Work Commission, Unfair Dismissals Benchbook, “High income threshold”. Last updated 1 July 2026. Retrieved 11 October 2026: https://www.fwc.gov.au/high-income-threshold
- Fair Work Commission, “Who the law protects from unfair dismissal”. Last updated 14 December 2023. Retrieved 11 October 2026: https://www.fwc.gov.au/job-loss-or-dismissal/unfair-dismissal/about-unfair-dismissal/who-law-protects-unfair-dismissal
- Fair Work Commission, “Conciliation for unfair dismissal”. Last updated 17 April 2023. Retrieved 11 October 2026: https://www.fwc.gov.au/job-loss-or-dismissal/unfair-dismissal/conciliation-unfair-dismissal
- Fair Work Commission, “Options at conciliation for unfair dismissal”. Retrieved 11 October 2026: https://www.fwc.gov.au/job-loss-or-dismissal/unfair-dismissal/conciliation-unfair-dismissal/options-conciliation-unfair
- Fair Work Commission, “General protections applications”. Last updated 7 May 2026. Retrieved 11 October 2026: https://www.fwc.gov.au/workplace-disputes/general-protections-and-harmful-adverse-action/general-protections-applications
- Federal Register of Legislation, “Fair Work Act 2009”. Compilation No. 73, compilation date 7 July 2026, sections 390 to 394 and 545. Retrieved 11 October 2026: https://www.legislation.gov.au/C2009A00028/latest/text
