Calculating Average Redundancy Payments for Australian Employers

Redundancy is one of those business decisions that’s never purely “numbers on a spreadsheet”. For small businesses, it often happens at a turning point: cash flow is tight, work has slowed down, a major customer has left, or you’re restructuring to keep the business viable.

At the same time, redundancy is heavily regulated in Australia. If you get it wrong, the cost can quickly go beyond the redundancy payment you were budgeting for - especially if the termination process triggers an unfair dismissal claim, a dispute about entitlements, or penalties for non-compliance.

This guide is written for Australian small business owners who are trying to understand what people mean when they search for an “average redundancy payment”, what goes into a redundancy payout, and how to estimate it safely and lawfully.

What Does “Average Redundancy Payment” Mean For Small Businesses?

The phrase “average redundancy payment” is popular online because people want a quick benchmark. But in real workplace law terms, there isn’t one single “average” that applies to all businesses.

That’s because redundancy payments vary based on factors such as:

• the employee’s length of continuous service
• their base pay rate (and whether their hours vary)
• whether they are covered by the national minimum standards only, or also an Award or enterprise agreement
• whether the redundancy is a “genuine redundancy” under the Fair Work Act
• whether your business qualifies as a “small business employer” (fewer than 15 employees) for redundancy pay purposes
• what other termination-related costs apply (notice, accrued leave, and potentially other entitlements)

So rather than chasing a single number, it’s usually more useful to understand how redundancy is calculated and what expenses you should plan for when making a role redundant.

A Quick Reality Check: Redundancy Pay Is Only One Part Of The Exit Cost

When small businesses talk about the “average redundancy payment”, they often mean the total cost of ending employment - but legally, redundancy pay is only one component. You may also owe:

• notice of termination (or payment in lieu)
• payout of unused annual leave (and leave loading, if applicable)
• long service leave (in some cases, depending on the state and tenure)
• other contractual or Award-based entitlements

It’s a good idea to cost the full termination package before you make decisions about restructuring.

How Is Redundancy Pay Calculated In Australia?

In Australia, redundancy pay is primarily governed by the Fair Work Act 2009 (Cth) and the National Employment Standards (NES). Many employees are also covered by a Modern Award or enterprise agreement, which can add extra obligations (for example, consultation requirements and notice rules).

Under the NES, redundancy pay is based on the employee’s length of continuous service with your business, and it’s calculated using the employee’s base rate of pay (not their “all-in” rate that includes loadings, allowances, or overtime).

NES Redundancy Pay: The Conceptual Formula

While the exact scale is set out in legislation, the structure is simple:

• Step 1: Confirm the employee’s continuous service (start date to termination date, less certain unpaid absences).
• Step 2: Identify the employee’s base rate of pay.
• Step 3: Apply the relevant number of weeks’ redundancy pay based on their years of service.
• Step 4: Multiply weeks owed by the base weekly pay.

If you want a fast sense-check, you can use a tool like a redundancy calculator to estimate the likely amount. Just remember: calculators are only as accurate as the assumptions you put into them, and they don’t always capture Award/contract variations or complex service issues.

Important: Redundancy Is Different From Notice (But They Often Sit Together)

Small businesses sometimes budget for redundancy pay but forget notice obligations. Notice is usually required even where redundancy pay is not.

Notice can be worked out or paid out. If you’re considering paying it out instead of having the employee work through the notice period, make sure you understand payment in lieu of notice and ensure it aligns with the employment contract and any applicable Award.

What Usually Makes Up The “Average Redundancy Payment” In Practice?

If you’re trying to estimate an average redundancy payment from a budgeting perspective, it helps to break the total exit cost into components. In many small business redundancies, the “total payout” includes:

1) Redundancy Pay (If Payable)

This is the statutory severance-style payment under the NES (or enhanced under an Award/enterprise agreement). Whether it applies depends on the employee’s eligibility, your business size, and any Award/enterprise agreement terms that apply.

2) Notice Of Termination (Or Payment In Lieu)

Notice is separate to redundancy pay and often overlooked when owners are trying to estimate the average redundancy payment. Notice periods can be influenced by:

• the NES minimums
• the employment contract
• an applicable Award/enterprise agreement

Notice mistakes are common when businesses move quickly during restructure, so it’s worth double-checking your obligations early.

3) Unused Annual Leave (And Sometimes Leave Loading)

Generally, unused annual leave must be paid out on termination. If your employee is entitled to leave loading (common under many Awards), you may also need to pay that out.

Unused leave is often one of the largest parts of the real-world “average redundancy payment” where employees have built up balances.

4) Long Service Leave (Depending On The State And Tenure)

Long service leave is regulated at a state/territory level and can become payable in some redundancy scenarios, including pro-rata entitlements in certain circumstances.

If you operate in Queensland and you’re unsure whether pro-rata long service leave might apply, it’s worth reviewing the rules around pro-rata long service leave, especially for longer-serving team members.

5) Other Award/Contract Entitlements

Depending on your industry and the employee’s role, there may be additional termination-related obligations, such as:

• payment of accrued time off in lieu (TOIL), if applicable
• contractual bonuses (sometimes disputed)
• specific Award redundancy provisions (some Awards include consultation steps and redeployment obligations)

This is where getting the documentation right upfront can really help. A well-drafted Employment Contract can reduce ambiguity about termination clauses, notice, and other entitlements.

When Might Redundancy Pay Not Be Owed (Even If The Role Is Redundant)?

Understanding the “average redundancy payment” also means knowing when redundancy pay doesn’t apply - because in some cases, your budget might only need to cover notice and accrued leave.

Some common situations where redundancy pay may not be payable include the following (noting the details matter):

Small Business Employer Exemption

If you employ fewer than 15 employees (counting certain employees on a regular and systematic basis), you may be classified as a “small business employer” for redundancy purposes under the Fair Work Act.

In that case, you may not have to pay redundancy pay under the NES. However, this exemption doesn’t remove your other obligations (like notice and paying accrued entitlements), and it won’t necessarily override any redundancy-related requirements in an applicable Award or enterprise agreement. You still need to ensure the redundancy is handled lawfully and the process is defensible.

Employee Has Less Than 12 Months’ Service

Under the NES, redundancy pay is generally not payable if the employee has less than 12 months of continuous service.

But you still need to pay out other entitlements (like annual leave) and comply with notice requirements, which may be set by the NES, the contract, or an Award.

Redeployment Or Suitable Alternative Employment Is Available

In some cases, redundancy pay can be affected if the employee is offered acceptable alternative employment (including potentially with an associated entity). Whether an offer is “acceptable” depends on the circumstances.

Fixed-Term / Maximum Term Complexities

Fixed-term and maximum term arrangements can be legally tricky. If the employment ends because the term ends (and that’s done correctly), redundancy may not apply in the same way as an ongoing role being made redundant.

If you use these arrangements, be careful. The law around contract types, renewals, and endings can be nuanced, and mistakes can be expensive.

How To Estimate Your Likely Redundancy Cost (Without Guessing)

If your goal is to understand your own “average redundancy payment” exposure for budgeting, a practical approach is to run a consistent checklist for each role at risk.

Step 1: Confirm Whether You Owe Redundancy Pay At All

Start by confirming:

• Are you a small business employer (fewer than 15 employees) for NES redundancy pay purposes?
• Does the employee have 12+ months of continuous service?
• Is the employee covered by an Award/enterprise agreement with extra redundancy provisions (including consultation or redundancy terms)?

Even if redundancy pay is not owed, you still need to ensure the termination is handled properly and defensibly.

Step 2: Add Notice Costs

Work out the minimum notice. Then decide whether they will:

• work through the notice period, or
• receive payment in lieu of notice

Make sure your payroll treatment is correct and consistent with the contract.

Step 3: Add Accrued Entitlements

At minimum, calculate:

• unused annual leave (plus leave loading if applicable)
• any accrued RDO/TOIL arrangements (if used in your business)
• potential long service leave

Step 4: Pressure-Test The “Genuine Redundancy” Requirements

Many disputes don’t start because the amount is wrong - they start because the employee doesn’t accept the redundancy was genuine.

In practical terms, you should be able to show that:

• the role is no longer required due to operational changes (not because of performance or conduct issues)
• you have complied with any consultation obligations (particularly if an Award applies)
• you have considered redeployment options where required

If you’re unsure about process or documentation, it may be worth obtaining advice before issuing notices and letters. That’s often cheaper than trying to fix the situation after the termination has taken place.

Common Redundancy Mistakes Small Businesses Make (And How To Avoid Them)

Redundancy can feel urgent, especially when you’re trying to protect the business. But moving too quickly can create legal risk.

Here are a few common pitfalls we see small businesses run into.

1) Treating Redundancy Like “Just A Termination”

Redundancy has its own rules. You generally need to approach it as a structured process - not a standard termination conversation.

If your documents and communications aren’t consistent, it can create doubt about whether the redundancy was genuine.

2) Underestimating The Impact Of Awards And Consultation

Even if your employee is paid above the Award rate, they may still be covered by an Award that imposes consultation obligations when major workplace change occurs.

Skipping consultation is one of the most avoidable ways to end up in a dispute.

3) Getting Notice Or Final Pay Calculations Wrong

Small calculation errors can turn into big problems when an employee challenges their final pay.

It helps to have a consistent process for final pay, including checking leave balances and confirming whether leave loading applies.

4) Trying To Solve A Performance Issue Using Redundancy

This is risky. If the real reason is performance or conduct, redundancy may be challenged.

If you need to manage performance issues, it’s usually better to do that through a proper performance process rather than reshaping it as redundancy.

5) Not Having The Right Paperwork In Place

Your legal documents set the foundation for how employment issues are handled. In addition to a clear Employment Contract, many small businesses benefit from having consistent workplace policies and termination templates.

If you’re restructuring, it can also be worth checking your internal approvals and decision-making process (for example, who has authority to approve redundancies, and what records you’ll keep to support that decision).

Key Takeaways

• The “average redundancy payment” varies widely because redundancy costs depend on service length, base pay, Awards/agreements, business size, and the employee’s accrued entitlements.
• Redundancy pay is only one part of the total cost - you also need to budget for notice (or payment in lieu), unused annual leave (and possible leave loading), and sometimes long service leave.
• Small business employers (generally fewer than 15 employees) may be exempt from paying redundancy pay under the NES, but Awards/enterprise agreements and specific circumstances can change what you need to do. You still must comply with notice, consultation (where required), and final pay obligations.
• Getting the process right matters just as much as the numbers - genuine redundancy requirements, consultation obligations, and redeployment considerations can all affect your risk.
• Using a structured checklist (eligibility, notice, leave, long service leave, and compliance steps) is a practical way to estimate redundancy exposure without guessing.
• Redundancy and termination payments can have tax (and sometimes super) implications depending on the circumstances, so it’s also worth checking the ATO guidance and speaking with your accountant or payroll adviser.

If you’d like help managing a redundancy process or checking your redundancy pay and termination documents, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.