Roger Stichbury, 51, was suspended from Grantside special needs school in Everton, Liverpool, in July 1998, and forced to take early retirement three years later after having a breakdown.
His wife Sue also had a breakdown because of the stress and had to give up her job as registered childminder. She told The TES the payout was derisory. "It's a joke. If Liverpool had resolved this earlier Roger could have gone back into teaching and worked for another 15 years. It's a waste of a good teacher.
"We have eight children, and this has affected the whole family. It's been a total nightmare."
She said her husband had "playfully" kicked the 14-year-old boy after he had ripped Mr Stichbury's shirt as he grabbed for a letter. The incident was resolved amicably with the boy's guardian. The NSPCC investigated and Mr Stichbury was cleared but the council launched its own inquiry.
The modern languages and PE teacher remained on his pound;26,000 salary until September 2001, when he took early retirement.
Another teacher at the now-closed school is expected to hear next month how much compensation he will receive after winning his case for unfair dismissal.
Eric Poole, 47, was suspended in July 1997 after two children said he ducked their heads under the water during a swimming lesson.
He was acquitted of cruelty and assault at Liverpool crown court in 1998 but the council decided to investigate. Mr Poole remained on the payroll until September 2002, when he was made redundant with Grantside's closure.
Both teachers were represented by the National Association of Schoolmasters Union of Women Teachers.
Liverpool council is contesting Mr Poole's tribunal ruling.