Redundancy Pay Under the NES: What Employers Need to Know

Restructuring is part of running a business - whether you’re consolidating roles, responding to changing demand, or closing a location.

When a role is no longer required, the National Employment Standards (NES) set minimum redundancy pay obligations for many employers in Australia.

Handled well, a redundancy process protects your business, treats people fairly and reduces the risk of disputes. In this guide, we’ll walk through when redundancy pay applies, how to calculate it under the NES, the process steps to follow, and practical tips for compliance.

What Is A Genuine Redundancy Under The NES?

A role is genuinely redundant when your business no longer needs anyone to do that job because of operational changes - for example, you restructure, adopt new technology, or relocate work.

To be a genuine redundancy under the Fair Work Act, three things must generally be true:

• You no longer require the person’s job to be done by anyone due to changes in your operational requirements.
• You’ve met any consultation obligations in an applicable modern award or enterprise agreement (if one applies).
• It isn’t reasonable to redeploy the employee within your business or an associated entity.

This is different from ending employment for performance or conduct reasons. Where a redundancy is genuine, unfair dismissal risk is significantly reduced - but only if you follow the required process (consultation, considering redeployment, and proper payment of notice and any redundancy pay that applies).

Most awards require you to consult affected employees before making a final decision. That means sharing the proposed changes, the likely impact, and genuinely considering options or suggestions put forward (including redeployment).

Who Is Entitled To Redundancy Pay (And Who Isn’t)?

The NES redundancy pay provisions apply to many permanent employees, but there are important exclusions. As an employer, you should check entitlement carefully before making any commitments.

Employees who are generally not entitled to redundancy pay

• Employees of a small business employer (fewer than 15 employees - see more below).
• Employees with less than 12 months’ continuous service.
• Casual employees.
• Employees employed for a set period or a specific task (genuinely fixed-term or specified task contracts).
• Apprentices or trainees (in many cases).
• Employees dismissed for serious misconduct (not a redundancy scenario).

Some enterprise agreements or employment contracts may provide more generous redundancy benefits than the NES. The NES sets the minimum standard, and contracts or agreements cannot validly undercut it.

It’s also important to consider associated entities when counting service and when assessing the small business exemption. If you operate through group companies, continuity of service and headcount may include related entities in some cases.

Well-drafted Employment Contracts help clarify service, notice and redundancy interactions, but they can’t remove NES minimums. If in doubt, get tailored advice before you act.

How Do I Calculate Redundancy Pay Under The NES?

Where an employee is entitled to redundancy pay under the NES, the payment is a number of weeks based on their period of continuous service with you. It’s paid at their base rate of pay for ordinary hours (excluding overtime, penalty rates, loadings, bonuses and allowances unless otherwise required by an agreement).

NES redundancy pay scale (weeks of base pay)

• At least 1 year but < 2 years: 4 weeks
• At least 2 years but < 3 years: 6 weeks
• At least 3 years but < 4 years: 7 weeks
• At least 4 years but < 5 years: 8 weeks
• At least 5 years but < 6 years: 10 weeks
• At least 6 years but < 7 years: 11 weeks
• At least 7 years but < 8 years: 13 weeks
• At least 8 years but < 9 years: 14 weeks
• At least 9 years but < 10 years: 16 weeks
• 10 years and over: 12 weeks

A few practical points:

• Partial years are not rounded up - use the completed years of service to find the band.
• Continuous service generally excludes unpaid leave (unless otherwise provided) and resets if service is broken.
• Where hours vary, calculate the base rate against ordinary hours under the contract or award for that role.

Many employers run the numbers in advance to budget and plan. You can check the figures using our Redundancy Calculator or read our step-by-step overview on how to calculate redundancy payments.

Superannuation treatment can be tricky. Redundancy pay is treated differently to other termination amounts, and tax rules also vary. To avoid errors, cross-check your obligations around super and other termination payments using this guide on whether super is payable on termination payments.

Notice, Consultation And Redeployment: Process Steps To Get Right

Even where redundancy pay is not owed (for example, a small business employer), you still need to follow a fair process. Getting the sequence and communications right will help you manage risk.

Step 1: Map the business case and redeployment options

Document the operational reasons you no longer need the role and identify any reasonable redeployment options within your business or associated entities. Keep this short and factual.

Step 2: Check instruments and consultation obligations

Identify if a modern award or enterprise agreement applies and review any consultation clause. Most require you to share the proposed changes, consider feedback and explore redeployment before a final decision.

Step 3: Meet and consult

Hold a consultation meeting with the employee to explain the proposal, potential impact, timing, and any redeployment opportunities. Invite feedback. If relevant, provide details in writing after the meeting.

Step 4: Decide and give notice

Once consultation is complete and you’ve considered redeployment, confirm the decision in writing. Provide the correct notice period under the NES or an award/agreement. If you need to end employment earlier, you can make a payment in lieu of notice instead of the employee working out the notice.

Step 5: Calculate and pay final entitlements

Final pay typically includes notice (or payment in lieu), any NES redundancy pay that applies, accrued but untaken annual leave (and long service leave if applicable under state law), plus any other contractual amounts. For a practical checklist, see the guide to calculating final pay for employees.

If the employee is on leave or sick at the time of consultation, you still need to meet your obligations. There can also be interactions between redundancy and leave entitlements; this overview on redundancy and sick leave explains common scenarios for employers.

Small Business Employers: How Does The NES Redundancy Exemption Work?

Under the NES, a small business employer is an employer with fewer than 15 employees at the time of the redundancy (including the employee being made redundant). If you are a small business employer, NES redundancy pay does not apply.

Key points to keep in mind:

• Headcount generally includes all employees across your business, not just at one site. Regular and systematic casuals are usually counted for the headcount test.
• If you are part of a group with associated entities, employees of those entities may need to be included in the headcount.
• The small business exemption removes NES redundancy pay only. You must still provide notice (or payment in lieu), consult under any applicable award/agreement, and pay accrued entitlements.

It’s common for businesses near the 15-employee threshold to change status as they scale up or down. If you’re not sure how to apply the test across related entities or casuals, it’s wise to seek advice before you decide.

What Should Be In Your Redundancy Toolkit?

Having the right documents in place makes a difficult process smoother and more compliant. Consider the following:

• Employment Contract: Sets the baseline for notice, role, and entitlements for permanent staff (without undercutting the NES).
• Casual Employment Contract: Clarifies engagement terms for casuals and avoids confusion about redundancy entitlements.
• Employee Termination Documents: Templates and letters to manage consultation, notice and termination communications consistently.
• Redundancy Document Suite: Policies, scripts and letters tailored to redundancy processes, helping you meet consultation obligations.
• Redundancy Advice: One-on-one guidance on eligibility, calculation, redeployment and risk management for your specific scenario.

If you’re facing a larger restructure or multiple redundancies, it can also help to prepare a brief internal plan covering timelines, responsibilities and a communication approach for your team.

Key Takeaways

• Redundancy pay under the NES applies when a role is genuinely no longer required, you’ve consulted where required, and redeployment isn’t reasonable.
• Many employees are covered, but there are exclusions - including the small business employer exemption (fewer than 15 employees) and less than 12 months’ service.
• NES redundancy pay is a set number of weeks based on continuous service and is paid at the employee’s base rate for ordinary hours.
• Follow a fair process: consult under any award/agreement, consider redeployment, give notice (or pay in lieu), and pay all final entitlements correctly.
• Use tools like a calculator to estimate costs and have clear contracts and termination documents ready to keep the process consistent and compliant.
• When in doubt, get advice - small errors in eligibility or calculation can be costly and damage trust.

If you’d like a consultation on handling redundancy pay and NES obligations in your business, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.