Redundancy In Lieu Of Notice: Employer’s Compliance Guide

Letting people go is never easy. When roles genuinely disappear in your business, you’ll need to manage redundancies in a way that’s legally compliant and respectful. A common question we hear is whether you can end employment straight away and simply pay the notice period instead. The short answer: yes - if you calculate and document everything correctly.

This guide breaks down how redundancy in lieu of notice works in Australia, the difference between notice and redundancy pay, and the steps to run a fair, compliant process. We’ll flag common mistakes (like missing consultation duties or miscalculating payments) so you can protect your business and treat your team fairly.

Read on for practical steps you can take now to complete redundancies lawfully and with confidence.

What Is Redundancy In Lieu Of Notice?

When a role is made redundant, most permanent employees are entitled to advance notice that their employment will end. Under the Fair Work framework, you can either allow the employee to work out that period, or you can pay the amount they would have earned for that period and bring the employment to an end immediately. That payment is commonly called “payment in lieu of notice.”

Both options are lawful if the redundancy is genuine and you meet all entitlements. A genuine redundancy means you no longer need the job to be done by anyone, you’ve consulted the employee if a modern award or enterprise agreement requires consultation, and redeployment was not reasonable.

What you can’t do is terminate on the spot without either giving the correct notice or paying in lieu of notice. That’s a fast way to attract disputes and potential claims about the fairness of the dismissal.

How Do Notice Periods Work Under The NES?

The National Employment Standards (NES) set minimum notice periods based on an employee’s length of continuous service. Contracts, enterprise agreements or modern awards can prescribe longer periods - if so, the longer period applies.

• Up to 1 year of service: 1 week
• More than 1 year to 3 years: 2 weeks
• More than 3 years to 5 years: 3 weeks
• More than 5 years: 4 weeks
• Additional 1 week if 45+ years old and at least 2 years’ service

These are minimums. Always cross-check the individual employee’s Employment Contract, any applicable award or registered agreement, and your internal policies in case they set a higher standard.

Example: Extra Notice For An Older Employee

Let’s say an employee is 47 years old with 10 years’ service. Their minimum notice is 4 weeks, plus an additional week due to age and service. You can either allow them to work out 5 weeks, or pay the equivalent of 5 weeks at their full rate in lieu so their employment ends immediately.

Do Casual Employees Get Notice?

Casuals generally have no entitlement to notice of termination or redundancy pay under the NES (unless a contract or enterprise agreement says otherwise), because casual employment doesn’t include a continuous service requirement in the same way as permanent employment. Always check the written terms and any applicable industrial instrument to be sure.

What About Final Pay Timing?

There isn’t one universal date by law for all workplaces, but in practice you should pay final entitlements without undue delay, and many awards or agreements set specific timeframes. It’s best practice to pay promptly (often on or shortly after the termination date). If you’re unsure what must be included, this final pay guide outlines the typical components you’ll need to calculate.

When Can You Pay In Lieu (And What Must You Pay)?

Paying in lieu of notice is permitted where it’s not practical or desirable for the employee to work out their notice - for example, where a site is closing, a role is sensitive, or you want a clean and immediate transition for both sides. The key is paying what the employee would have earned had they worked the notice period, and properly documenting the decision.

What Does “Full Rate” Include?

Payment in lieu of notice is calculated at the employee’s full pay for their ordinary hours during the notice period. That typically includes:

• Base pay for ordinary hours
• Regular allowances and loadings that form part of ordinary time
• Penalty rates that ordinarily apply to their rostered ordinary hours

Keep in mind there may also be superannuation obligations on payment in lieu of notice depending on the circumstances. For more detail on this point, see payment in lieu and super in this superannuation guide.

Other Entitlements To Pay At Termination

Separate from payment in lieu of notice, you’ll need to settle accrued but unused leave and any redundancy pay (if applicable). In many cases, it’s helpful to compile a termination calculation sheet that covers:

• Payment in lieu of notice (if not worked)
• Accrued but untaken annual leave (plus leave loading if it applies under an award or contract)
• Long service leave (if the employee is eligible under the relevant state or territory law)
• Any redundancy pay entitlement (see below for the scale)
• Any contractual benefits or bonuses that are payable on termination

If you’re not confident about your calculations, this practical payment in lieu of notice guide can help you double-check what to include.

Redundancy Pay vs Notice: What’s The Difference?

Notice and redundancy pay are two different entitlements. Notice (or payment in lieu) covers the time period between telling an employee their employment will end and the end date. Redundancy pay compensates eligible employees for the loss of their job because it’s no longer required to be done by anyone.

Who Gets Redundancy Pay?

• Large employers (15 or more employees): Generally must pay redundancy pay under the NES unless an exception applies.
• Small business employers (fewer than 15 employees): Usually exempt from paying redundancy pay under the NES, but must still provide notice or pay in lieu.

Some employees are excluded from redundancy pay (for example, casual employees, apprentices, or employees on a fixed-term contract that simply ends on time). Always check the NES, any applicable award or agreement, and the employee’s contract.

NES Redundancy Pay Scale (Including The 10+ Years Rule)

For eligible employees, redundancy pay under the NES is based on years of continuous service with the employer:

• At least 1 year but under 2 years: 4 weeks
• 2 years to under 3 years: 6 weeks
• 3 years to under 4 years: 7 weeks
• 4 years to under 5 years: 8 weeks
• 5 years to under 6 years: 10 weeks
• 6 years to under 7 years: 11 weeks
• 7 years to under 8 years: 13 weeks
• 8 years to under 9 years: 14 weeks
• 9 years to under 10 years: 16 weeks
• 10 years and over: 12 weeks (note the reduction after 10 years)

Many employers are surprised that the entitlement drops to 12 weeks after 10 years - that’s how the NES scale works. If you’re budgeting for redundancies, this redundancy calculator and this overview of redundancy payment calculations can help sanity-check your figures.

Step-By-Step Process For A Compliant Redundancy

A clear, compassionate process reduces risk and helps people transition smoothly. Here’s a structured approach you can adapt to your workplace.

1) Confirm A Genuine Redundancy And Check Instruments

Confirm the role is genuinely no longer required, review the organisational change that supports this conclusion, and consider whether redeployment is reasonably available within your business or an associated entity. Then review the employee’s contract, any modern award or enterprise agreement, and your policies to confirm notice periods, redundancy pay and consultation requirements.

2) Consult If An Award Or Agreement Requires It

Most modern awards include a consultation clause that requires you to consult with affected employees when you make a definite decision to make major workplace changes that are likely to have significant effects (like redundancies). Enterprise agreements have similar provisions. Follow those consultation steps carefully (for example, provide relevant information about the change, invite views and consider them in good faith).

If you propose to dismiss 15 or more employees for reasons of an economic, technological, structural or similar nature, you must also notify Services Australia. This obligation is separate from consultation under an award or agreement.

3) Provide Written Notice (Or Confirm Payment In Lieu)

Give the employee written notice of termination. If you are paying in lieu of notice, state that clearly and specify the amount you’ll pay for the notional notice period. It’s a good idea to include a breakdown of termination payments, either in the letter or an attached calculation sheet.

4) Calculate And Pay Final Entitlements Accurately

Work out payment in lieu of notice (if applicable), redundancy pay (if applicable), accrued leave and any other amounts owing. Pay promptly in line with any timeframes in an award, agreement or policy. For more detail on what to include, see this guide to calculating final pay.

5) Provide Required Records And Certificates

Provide a statement of service if requested. Employment separation certificates are not automatically required in every case, but if Services Australia or the former employee requests one, you must provide it (generally within 14 days of request). You can learn more in this overview of employer separation certificates.

6) Consider A Deed Of Release (Where Appropriate)

In some situations (for example, senior roles or where additional ex‑gratia amounts are paid), employers use a separation deed to document the settlement of entitlements and mutual releases. If you go down this path, these employee separation agreement essentials are a helpful reference.

7) Keep Records And Communicate With Care

Maintain records of your decision-making, consultation steps, notices and calculations. Clear, respectful communication helps people understand what’s happening and reduces misunderstandings that can lead to disputes later.

Special Rules, Risks And Common Mistakes

Casuals, Fixed-Terms And Probation

• Casual employees: Generally not entitled to notice or redundancy pay under the NES, unless a contract or enterprise agreement provides otherwise.
• Fixed-term employees: If a fixed-term contract simply ends on its stated end date, redundancy pay and notice don’t usually apply. Different rules can apply if you end the contract early - check the contract terms carefully.
• Probation: Minimum notice under the NES still applies during probation for permanent employees. There can be different considerations for claims risks in early employment - this overview on termination during probation explains the basics.

Consultation Missteps

Failing to follow award or agreement consultation clauses is a common (and avoidable) mistake. Even when your decision is firm, you still need to consult as required - provide relevant information, invite feedback and consider redeployment. Skipping these steps can increase legal risk even if the role is genuinely redundant.

Miscalculating Payments

Errors with payment in lieu of notice, unused leave or redundancy pay are another frequent source of disputes. Build your calculation off the correct ordinary rate, include relevant loadings and allowances, and apply the NES redundancy scale correctly (including the reduction to 12 weeks at 10+ years). If there’s been an overpayment or underpayment, take quick steps to fix it. If you inadvertently overpay, these overpayment options explain your paths to recovery.

Unfair Dismissal And Genuine Redundancy

Where an employee is eligible to bring an unfair dismissal claim, a proper “genuine redundancy” is a key defence. That means the job is no longer required, you’ve complied with any consultation obligations, and it wasn’t reasonable to redeploy the employee within your business or an associated entity. If you’re unsure whether your situation meets that threshold, the factors in section 387 of the Fair Work Act give context to how fairness is assessed.

Superannuation On Payment In Lieu

Whether superannuation is payable on payment in lieu of notice can be technical and context-dependent, so check current guidance and your industrial instrument. As a starting point, review your obligations using the dedicated payment in lieu and superannuation guide and speak with your payroll adviser if needed.

Documents That Make Redundancies Smoother

Having the right documents in place minimises confusion and helps ensure compliance from day one. Key documents to consider include:

• Employment Contract: Sets expectations on notice, redundancy entitlements and termination processes, which makes compliance far easier. See the template and inclusions in Employment Contract.
• Workplace Policies/Staff Handbook: Clear policies (like consultation, redeployment considerations and offboarding) promote consistent decision-making. Review what’s included in the Staff Handbook package.
• Redundancy Letters and Calculations: Use a consistent format to set out reasons, last day, notice or payment in lieu, redundancy pay and other entitlements. Sprintlaw’s Redundancy Document Suite covers these essentials.
• Separation Agreement (where appropriate): A deed to formalise terms and mutual releases in higher-risk exits.

Key Takeaways

• Redundancy in lieu of notice is lawful in Australia - you can end employment immediately if you pay what the employee would have earned during their notice period at their full rate.
• Minimum notice periods come from the NES, with an extra week for employees aged 45+ with at least 2 years’ service; longer periods in contracts or awards take priority.
• Redundancy pay is separate from notice. Larger employers generally must pay redundancy pay using the NES scale, including the drop to 12 weeks for 10+ years’ service.
• Consultation is required if a modern award or enterprise agreement says so, and notifying Services Australia is required if 15 or more employees are to be dismissed for economic, technological or similar reasons.
• Final pay should be calculated accurately and paid without undue delay, including payment in lieu of notice (if applicable), accrued leave, and any redundancy pay.
• Good documentation - contracts, policies, redundancy letters and calculation sheets - reduces risk and helps demonstrate a genuine, compliant process.
• If you’re unsure about calculations, consultation, or documentation, it’s best to get advice before you finalise the redundancy to avoid costly errors.

If you would like a consultation on handling redundancy in lieu of notice, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.