Genuine Redundancy: Employer’s Legal Guide (Australia)

If you’re restructuring, downsizing or changing the way your business operates, you may be considering redundancies. Done properly, a genuine redundancy can help you reset your workforce and remain sustainable. Done poorly, it can expose you to unfair dismissal risks, back-pay claims and tax complications.

In Australia, a redundancy is only “genuine” if strict criteria are met. There are also minimum entitlements, consultation duties under awards and enterprise agreements, and specific tax rules for redundancy payouts.

In this guide, we’ll unpack what counts as a genuine redundancy, who is entitled to redundancy pay, how payments are taxed, the step-by-step process to follow, and the documents you’ll want in place to protect your business. Our aim is to help you manage difficult changes in a way that’s fair, lawful and well-documented.

What Is A Genuine Redundancy In Australia?

A redundancy is “genuine” when you no longer need a job to be done by anyone because of changes in your operational requirements. Common reasons include restructures, technology or automation, relocating operations, or business closure. It is not about an individual’s performance or conduct.

Three core requirements

• Role no longer required: The job is no longer needed due to operational change (for example, a reorganisation or the introduction of new systems that remove the need for that position).
• Consultation (if an award or EA applies): If the employee is covered by a modern award or enterprise agreement, you must consult in line with the consultation term. This usually involves timely written notice, discussing reasons, exploring alternatives and considering employee feedback before a final decision.
• No reasonable redeployment: You must consider whether there is any other suitable role for the employee within your business or an associated entity. If a suitable position exists and is not offered, the redundancy may not be genuine.

If these steps are missed, a terminated employee could challenge the decision as an unfair dismissal. The Fair Work Commission will consider factors such as process, consultation and redeployment when assessing whether a dismissal was harsh, unjust or unreasonable. For more on how the Commission weighs these factors, see the discussion around section 387 of the Fair Work Act.

Important: a redundancy is about the job, not the person. If you hire someone else soon after into what is essentially the same role, or you use redundancy to manage performance issues, you risk the process being found not genuine.

Who Gets Redundancy Pay And How Much?

When a redundancy is genuine, many employees are entitled to redundancy pay under the National Employment Standards (NES). This is separate from notice of termination (which can be worked or paid out).

Who is not generally entitled?

• Employees of a small business (fewer than 15 employees in total) are exempt from redundancy pay under the NES.
• Casual employees, apprentices, trainees and employees on a fixed-term contract (ending at the specified term) are usually excluded.

Always check the applicable modern award, enterprise agreement and employment contract, as some instruments provide more generous entitlements than the NES.

NES redundancy pay scale

Minimum redundancy pay is based on continuous service with your business:

• 1–<2 years: 4 weeks’ pay
• 2–<3 years: 6 weeks’ pay
• 3–<4 years: 7 weeks’ pay
• 4–<5 years: 8 weeks’ pay
• 5–<6 years: 10 weeks’ pay
• 6–<7 years: 11 weeks’ pay
• 7–<8 years: 13 weeks’ pay
• 8–<9 years: 14 weeks’ pay
• 9–<10 years: 16 weeks’ pay
• 10+ years: 12 weeks’ pay

The weeks’ pay is calculated at the employee’s ordinary rate (excluding overtime or penalties unless otherwise specified by an instrument). Your contract or enterprise agreement may specify a different method or higher amounts.

If you want a quick estimate to sense-check figures, you can use a redundancy calculator or step through the factors in how to calculate redundancy pay.

Notice and other final entitlements

Redundancy pay is in addition to the required notice of termination (or payment in lieu of notice) and any accrued but unused leave. Make sure you include annual leave, and long service leave where applicable, in the final pay. For a practical checklist across all components, see calculating final pay for employees.

How Are Genuine Redundancy Payments Taxed?

Genuine redundancy payments receive concessional tax treatment in Australia, but not every payout (or every person) qualifies for tax-free treatment. It’s important to get this right at payroll time.

Key conditions for tax concessions

• The dismissal must be because the job is genuinely redundant.
• The employee must be under the pension age at the time of dismissal.
• There must be no arrangement to re-employ the person after termination.
• The payment cannot be in lieu of superannuation, and some amounts (like accrued leave) don’t form part of the genuine redundancy component.

Where the conditions are met, a portion of the redundancy payment is tax-free up to a cap that is recalculated each financial year. The cap is made up of a base amount plus an additional amount for each completed year of service. Amounts above the cap are typically taxed as an employment termination payment (ETP), which is concessional compared to ordinary income tax rates (subject to annual ETP caps and the employee’s age).

What is and isn’t in the tax-free component?

• Included: The part of a genuine redundancy payment up to the ATO cap (base amount + service amount, indexed annually).
• Excluded: Payments for unused annual leave and long service leave, ex gratia amounts that don’t qualify, and payments in lieu of notice (which are taxed under different rules).

If the redundancy is not genuine, or the employee has reached pension age, the payment is not eligible for the tax-free component and will be taxed under the ordinary rules for termination payments.

Payroll and reporting

Employers report termination payments through Single Touch Payroll (STP). The employee will see their final income statement in myGov at year-end. You may also be asked to provide a separation certificate to support Centrelink claims.

Tax treatment varies based on individual circumstances, age and service. It’s sensible to run the figures past your payroll adviser or accountant before processing payments, especially where multiple components (redundancy, notice, leave, bonuses) are involved.

Step-By-Step Redundancy Process For Employers

A structured, fair process helps you do right by your people and reduces the risk of legal disputes. Here’s a practical pathway you can adapt to your business.

1) Confirm the business case

• Document the operational reasons for change (e.g. restructure, technology, cost-saving).
• Identify the roles impacted and why those duties are no longer required.

2) Identify coverage by awards or enterprise agreements

• Check whether the employee is covered by a modern award or enterprise agreement.
• If so, follow the consultation clause precisely: provide written information, invite feedback, consider alternatives, and keep notes of all discussions.

3) Explore redeployment

• Assess suitable roles within your business and associated entities.
• Consider location, pay, seniority and skills; offer any reasonable vacancies to the affected employee.

4) Decide and notify

• Once consultation is complete and redeployment has been considered, confirm your decision.
• Issue a clear letter advising of redundancy, the last day of employment, notice details, and the components of final pay.

5) Calculate and pay entitlements

• Apply the NES scale (or higher contractual/EA provisions) for redundancy pay.
• Include notice (worked or paid in lieu), and all accrued leave entitlements.
• Apply the correct tax treatment across each component; separate the genuine redundancy component from ETP and leave amounts in your payroll system.

6) Finalise reporting and offboarding

• Report through STP, update the employee’s income statement and issue any required letters.
• Complete IT offboarding, recover company property and confirm post-employment obligations (e.g. confidentiality, return of information).
• Provide a final pay breakdown so the employee can see each component clearly.

Tip: If circumstances change during consultation and you identify a reasonable alternative role, offer it promptly. This can preserve talent, avoid redundancy and demonstrate that you acted fairly.

Documents And Policies To Have In Place

Well-drafted contracts and policies make the redundancy process smoother and help prevent disputes. Consider the following:

• Employment Contract: Your template should cover notice, termination and redundancy provisions, and any interaction with awards or enterprise agreements. If your current templates are out of date, update your Employment Contract suite before future hires.
• Redundancy Policy or Procedure: Outlines how consultation will occur, who is responsible for decision-making and how redeployment is assessed. Clarity reduces anxiety and inconsistency.
• Termination Pack: Letters, calculation sheets, acknowledgements and checklists help you standardise the process. Many employers streamline this with an Employee Redundancy Document Suite or a broader termination documents pack.
• Payroll/Tax Guidance: Internal guidance notes so your payroll team separates redundancy, notice, ETP and leave correctly for taxation and STP purposes.
• Workplace Policies: A clear staff handbook (covering consultation, redeployment, IT security, property return and confidentiality) ensures consistent offboarding practices.

If your restructure will affect roles, it’s also a good moment to tidy up adjacent workforce issues (for example, reviewing set-off clauses, position descriptions and rosters) before changes occur to avoid later disputes.

Common Mistakes To Avoid

• Skipping consultation: If an award or EA applies and you don’t consult, the dismissal may not be considered a genuine redundancy even if the role truly disappears.
• Inadequate redeployment search: You must take reasonable steps to identify suitable roles within your business and associated entities. A cursory search won’t cut it.
• Poor documentation: Keep a clear paper trail: business case, consultation notices, meeting notes, redeployment assessments and final letters.
• Tax errors: Not separating the genuine redundancy component from ETP and leave can result in incorrect withholding. Sense-check figures and caps before paying.
• Rehiring into the same role: Advertising or filling a substantially similar position soon after can undermine the genuineness of the redundancy.
• Overlooking related entitlements: Consider interactions with sick leave or long service leave. For example, where timing matters, see guidance on redundancy and sick leave.

If a claim is lodged, respond calmly and rely on your records. A structured process and solid documentation are your best defence. Where in doubt, get early advice - sometimes a small process tweak can avoid a large dispute.

Key Takeaways

• A redundancy is only “genuine” if the role is no longer required, you consult where required, and there is no reasonable redeployment option.
• Redundancy pay under the NES depends on years of continuous service; small businesses are exempt, and some employees (e.g. casuals, fixed-term) are excluded.
• Notice (worked or in lieu) and accrued leave are separate entitlements that must be included in final pay.
• Genuine redundancy payments can include a tax-free component if eligibility conditions are met; amounts above the cap are usually taxed as ETP, and leave is taxed under separate rules.
• A clear process - business case, consultation, redeployment search, accurate calculations and STP reporting - reduces legal and tax risks. Use checklists and a redundancy document suite to standardise your approach.
• Good contracts, policies and records help you manage change fairly and withstand scrutiny if challenged.

If you would like a consultation on managing genuine redundancy, redundancy payments or entitlements in your business, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.