Alex is Sprintlaw’s co-founder and principal lawyer. Alex previously worked at a top-tier firm as a lawyer specialising in technology and media contracts, and founded a digital agency which he sold in 2015.
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If your business is restructuring or scaling back, or you’re an employee facing a potential job loss, understanding redundancy entitlements under Australia’s National Employment Standards (NES) will help you navigate a stressful time with confidence.
Redundancy is a sensitive topic. Employers worry about getting the process right and staying compliant, while employees want clarity on what they’re owed and how payments are taxed.
In this guide, we’ll explain what “genuine redundancy” means, who is entitled to redundancy pay, how the NES redundancy pay scale works, what to do about notice and final pay, and how redundancy payments are taxed in Australia. We’ll also share practical steps to help both employers and employees manage redundancy the right way.
Let’s break it down in plain English so you know what to expect and what to do next.
What Is A Genuine Redundancy Under The NES?
Redundancy is different from dismissal for performance or misconduct. A role is redundant when the employer no longer needs anyone to do that job because of operational changes, such as a restructure, outsourcing, technology changes, a site closure or drops in demand.
Under the Fair Work Act, a dismissal is a “genuine redundancy” when three elements are met:
- The employer no longer requires the person’s job to be done by anyone.
- Any required consultation under an award or enterprise agreement has occurred.
- It’s not reasonable to redeploy the employee within the employer’s enterprise or an associated entity.
These criteria are central to whether an employee can bring certain claims following termination. For a deeper dive into the legal test, see how the genuine redundancy criteria work under section 389 of the Fair Work Act.
Consultation And Redeployment Obligations
If a modern award or enterprise agreement applies, you must consult with affected employees about major workplace changes. This typically includes providing relevant information, discussing measures to avert or mitigate adverse effects, and considering redeployment.
Consultation isn’t a box-ticking exercise. Failing to consult can expose an employer to disputes or claims, even where a role was otherwise genuinely redundant.
Who Is Entitled To Redundancy Pay (And Who Isn’t)?
Under the NES, redundancy pay is a minimum entitlement for eligible employees (other than casuals). Broadly, an employee is entitled to redundancy pay if:
- They are not a casual and have at least 12 months’ continuous service.
- Their employer has 15 or more employees (including those of associated entities) - small business employers are generally exempt.
- Their job is genuinely redundant and consultation requirements are met.
There are specific exclusions. Redundancy pay generally doesn’t apply to:
- Casual employees.
- Employees of a small business employer (fewer than 15 employees, including associated entities).
- Employees dismissed for serious misconduct.
- Apprentices and trainees in certain circumstances.
- Employees engaged for a specified task, for a set period, or seasonal workers (depending on the arrangement and the instrument that applies).
If you’ve worked for less than 12 months, the NES redundancy pay entitlement doesn’t apply. However, a contract, policy, award or enterprise agreement might include additional benefits, so it’s worth checking your documents.
Employers should also ensure notice obligations are met. If you don’t want an employee to work out their notice, you can consider payment in lieu of notice in addition to any redundancy pay owed.
How Is Redundancy Pay Calculated Under The NES?
NES redundancy pay is based on the employee’s base rate of pay for ordinary hours (excluding bonuses, overtime, loadings or allowances) and their period of continuous service.
These are the statutory minimums:
| Employee’s Period of Continuous Service | Redundancy Pay (Weeks’ Pay) |
|---|---|
| At least 1 year but less than 2 years | 4 |
| At least 2 years but less than 3 years | 6 |
| At least 3 years but less than 4 years | 7 |
| At least 4 years but less than 5 years | 8 |
| At least 5 years but less than 6 years | 10 |
| At least 6 years but less than 7 years | 11 |
| At least 7 years but less than 8 years | 13 |
| At least 8 years but less than 9 years | 14 |
| At least 9 years but less than 10 years | 16 |
| At least 10 years | 12 |
Notice the entitlement steps up with service, but after 10 years it reduces to 12 weeks under the NES scale. This is a quirk of the legislation and doesn’t prevent an employer from paying more under a contract or policy.
How To Use The Scale In Practice
- Use the employee’s continuous service at the time of termination to find the correct band in the table.
- Multiply the “weeks’ pay” by the base rate for ordinary hours. Part-time employees are paid at their part-time base rate, not full-time equivalents.
- If an award, enterprise agreement or contract specifies a higher entitlement, that higher amount applies.
It’s common to pay additional amounts as part of a restructure or to offer voluntary redundancy incentives. Those extras are separate from the NES minimum and should be set out clearly in writing.
If you’re an employee trying to estimate your payout, a quick sense check using a redundancy calculator can be helpful, and you can then compare the result to your letter or contract terms.
Notice, Final Pay And Paperwork
Redundancy pay is only one piece of the final pay picture. Employers should also consider:
Notice Or Payment In Lieu
Employees are entitled to notice of termination (the length depends on service and age) or payment in lieu of notice. If you choose to pay instead of requiring the employee to work the notice, make sure you handle payment in lieu of notice correctly and communicate it clearly in the termination letter.
Accrued Leave
- Accrued but unused annual leave must be paid out on termination.
- Long service leave is dealt with under state or territory law. Check the rules that apply in your location and whether pro-rata entitlements are triggered.
Superannuation On Termination Amounts
As a general rule, superannuation is not payable on genuine redundancy amounts, unused annual leave, long service leave or payments in lieu of notice because these are not ordinary time earnings. There can be exceptions under an award, enterprise agreement or policy, so always cross-check your obligations. If you’re unsure, review your obligations around superannuation on termination payments or get tailored advice.
Final Pay Timing And Records
Pay all amounts promptly - ideally on the last day or the next regular pay cycle - and provide a clear breakdown of how each amount was calculated. Keep your payroll records up to date and ensure Single Touch Payroll (STP) reporting is correct so the employee’s income statement (accessible via myGov) shows the right treatment of termination payments.
Some employers also issue a separation document that sets out entitlements, tax treatment and any property returns. If relevant, review your obligations around employer separation certificates for Services Australia.
Calculating Final Pay Accurately
If you’re working through the numbers, it can help to follow a checklist approach: identify each entitlement line item, apply the NES or instrument rules, then double-check the calculations. Our overview of final pay calculations walks through common inclusions and pitfalls.
How Are Redundancy Payments Taxed In Australia?
Tax is one of the most common questions we hear about redundancy. The good news is that genuine redundancy payments receive concessional treatment from the Australian Taxation Office (ATO).
The Tax-Free Component
A portion of a genuine redundancy payment is tax free. The tax-free cap is calculated using a formula that includes a base amount plus an additional amount for each completed year of service. The ATO updates the dollar amounts each income year.
Amounts within this tax-free cap are not subject to income tax or the Medicare levy.
The Taxable Component
Any part of a redundancy payment above the tax-free cap is treated as an employment termination payment (ETP). ETPs are taxed up to statutory caps at concessional rates that depend on your age (for example, whether you have reached preservation age) and the relevant cap amount for the income year. Amounts above the cap are taxed at the top marginal rate.
Other termination amounts, such as unused annual leave or long service leave, are taxed at specific rates and are not part of the tax-free redundancy component.
Because ETP rates and caps change and age rules can be complex, it’s wise to get personalised advice from a registered tax agent or accountant before you make decisions about how and when payments are made.
Voluntary Vs Compulsory Redundancy
Voluntary packages are often taxed the same way as compulsory redundancies if they meet the ATO’s definition of a “genuine redundancy”. The key is whether the role is genuinely no longer required and all other criteria are met.
How Will The Payment Be Reported?
Since STP (Single Touch Payroll) reporting is now standard, employers report termination amounts through payroll. Employees then access their income statement via myGov rather than receiving a traditional “payment summary”. The income statement should distinguish any tax-free redundancy component and the ETP portion.
Superannuation And Tax On Redundancy
Superannuation is generally not payable on redundancy amounts themselves. If you’re considering transferring any amounts to super or making additional super contributions, speak with your tax adviser about contribution caps and timing.
Tax treatment is technical and time-sensitive. Consider timing, age, preservation age and caps before finalising payments. A short call with your accountant can make a meaningful difference to after-tax outcomes.
Practical Steps For Employers And Employees
For Employers
- Plan early: identify roles (not people), document business reasons and consider alternatives such as redeployment or reduced hours.
- Check coverage: confirm whether awards or enterprise agreements apply and follow all consultation procedures.
- Confirm eligibility: assess whether the small business exemption applies and whether the employee meets the 12-month requirement.
- Calculate entitlements: apply the NES scale accurately, include notice (or payment in lieu), and add accrued leave and other contractual amounts.
- Clarify super and tax: confirm super obligations on each component and the tax treatment of the redundancy and ETP portions, and ensure STP reporting is correct.
- Prepare documents: issue a redundancy letter setting out reasons, consultation steps, notice and all entitlements; include a clear breakdown of calculations.
- Pay on time: make payment on the last day or the next pay cycle and keep your records in order in case of audit or dispute.
- Get advice where needed: redundancy is a high‑risk area, so consider tailored redundancy advice or a document suite to standardise your process.
For Employees
- Ask questions early: request details of the business change, consultation steps and potential redeployment options.
- Check your instrument: review any award or enterprise agreement for consultation, notice and redundancy provisions.
- Confirm eligibility: consider service length, small business status and any exclusions that might apply to your role.
- Review calculations: compare the NES table with your service length and base rate, and run a sense check using a redundancy calculator.
- Look at leave and long service leave: confirm the payout for unused annual leave and check your state or territory rules for long service leave.
- Consider tax timing: speak to an accountant about the tax-free component, ETP caps and how this interacts with your other income for the year.
- Keep records: hold onto your termination letter, income statement details and any payout breakdowns.
- Seek support: if you’re unsure about your entitlements or process, a quick chat with an employment lawyer can save time and stress.
Common Pitfalls To Avoid
- Skipping consultation obligations where an award or enterprise agreement applies.
- Confusing performance issues with redundancy and attempting to use redundancy to end employment for the wrong reasons.
- Misapplying the NES scale (for example, not using the correct service band) or misclassifying casuals.
- Paying late or without a clear calculation breakdown.
- Incorrect STP coding, which can cause issues with the employee’s income statement.
Helpful Documents To Have In Place
- Employment Contract: sets clear terms from day one, including notice and any contractual redundancy benefits above the NES.
- Staff Handbook and workplace policies: outline consultation processes, redeployment considerations and communication standards during restructures.
- Redundancy letter template: ensures consistent, compliant messaging and records reasons, consultation steps and entitlements.
- Calculation worksheet: standardises how you calculate redundancy, notice, leave and any other amounts.
If you need standard documents or tailored templates, Sprintlaw can prepare a practical suite so your team can follow a consistent, compliant process.
Key Takeaways
- Redundancy under the NES is about the job no longer being required, not performance or conduct, and it must satisfy the “genuine redundancy” test including consultation and redeployment considerations.
- Eligibility matters: redundancy pay generally applies to non‑casual employees with at least 12 months’ service in businesses with 15+ employees (subject to exclusions).
- The NES table sets minimum redundancy pay based on service, calculated on base pay for ordinary hours; contracts, policies or enterprise instruments may provide more.
- Final pay typically includes redundancy, notice or payment in lieu, and accrued leave; super is generally not payable on these termination components, but confirm any instrument‑specific obligations.
- Genuine redundancy payments have a tax‑free component up to an ATO‑indexed cap; the balance is an ETP taxed up to statutory caps, so it’s smart to get tax advice on your specific situation.
- Clear consultation, accurate calculations, correct STP reporting and timely payment will minimise disputes and compliance risk for employers.
If you’d like a consultation about NES redundancy entitlements, notice and final pay, or to set up compliant policies and letters, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no‑obligations chat.
