Redundancy Payments: Essential Insights For Australian Employers

Restructures happen. Whether you’re downsizing, automating tasks or closing a business line, you need a clear, legally compliant redundancy process. Done well, you’ll support affected staff, minimise legal risk and keep your team’s trust during a challenging period.

This guide explains how redundancy pay works in Australia under the Fair Work Act 2009, when it’s owed (and when it isn’t), how to calculate the amount, the process you should follow, and the key tax and superannuation considerations.

What Counts As A Genuine Redundancy In Australia?

Redundancy pay under the National Employment Standards (NES) is only owed if the dismissal is a genuine redundancy. In plain English, that means:

• The employer no longer requires the employee’s job to be done by anyone because of changes in operational requirements (for example, restructure, downsizing, relocation or business closure); and
• The employer has complied with any consultation obligations in a modern award or enterprise agreement; and
• It was not reasonable to redeploy the employee within the employer’s business or an associated entity.

If any of these elements are missing, a redundancy may not be “genuine”, which can increase the risk of an unfair dismissal claim. The consultation and redeployment steps are practical, not box-ticking-document them and take them seriously.

Consultation Duties

Most modern awards and enterprise agreements require you to consult when you make major workplace change. This usually involves timely notification, providing relevant information, meeting to discuss the changes, and genuinely considering options (including redeployment) before final decisions are made.

Redeployment Duties

Before finalising a redundancy, assess “reasonable redeployment” across your business and any associated entities. Consider location, pay, hours, seniority and the employee’s skills (with reasonable training). Record your searches and outcomes.

Small Business Exemption (With Caveats)

Businesses with fewer than 15 employees are generally exempt from paying NES redundancy pay. However, small businesses still need to provide notice (or pay in lieu) and, if an award applies, they must still comply with consultation obligations. Where a contract or policy promises redundancy pay above the NES, you must honour that.

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

Under the NES, redundancy pay generally applies to permanent full-time and part-time employees with at least 12 months’ continuous service. However, some employees are not entitled to redundancy pay, including:

• Employees in a business with fewer than 15 employees (subject to any contractual or policy commitments)
• Casual employees
• Employees on a fixed-term contract that ends on its stated date or event
• Apprentices
• Employees with less than 12 months’ service
• Employees who refuse reasonable redeployment

There are also limited situations where an employer can apply to the Fair Work Commission to reduce redundancy pay (for example, where you obtain other acceptable employment for the employee or if paying the amount would cause significant financial hardship). This is a formal process-get advice before relying on it.

How Do You Calculate Redundancy Pay?

Redundancy pay is based on the employee’s base rate of pay for ordinary hours multiplied by a set number of weeks linked to their continuous service. It excludes overtime, penalty rates, loadings and allowances.

The NES Scale (Including The 10+ Years Drop)

The NES sets the following scale (selected bands shown):

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

Importantly, the entitlement reduces from 16 weeks to 12 weeks once service reaches 10 years. Many summaries overlook this drop-don’t.

Worked Example

Let’s say an employee’s base pay is $1,250 per week and they’ve completed 6 years’ continuous service. Under the NES, that’s 11 weeks. The redundancy payment would be $1,250 × 11 = $13,750 (before tax).

If you want a step-by-step walkthrough, see our guide on how to calculate redundancy pay, or try our quick redundancy calculator to estimate amounts.

Other Amounts To Include In Final Pay

Redundancy pay is only part of the final payout. You’ll also need to settle:

• Notice of termination, or payment in lieu of notice
• Accrued but unused annual leave (and leave loading if applicable)
• Long service leave according to state or territory rules
• Any outstanding wages and allowances

For a full checklist, see our guide to calculating final pay.

Notice, Consultation And Redeployment: A Practical Employer Checklist

A fair and compliant process helps you avoid disputes and protects your brand. Use this as a quick roadmap.

1) Plan And Document

• Identify the structural change and why the role is no longer required.
• Define selection criteria where multiple employees are in similar roles (e.g. skills, qualifications, operational needs). Apply criteria consistently.
• Prepare scripts and timelines. Keep clear records of each step.

2) Check Industrial Instruments And Contracts

• Confirm if a modern award or enterprise agreement applies and note any consultation or redundancy provisions.
• Review employment contracts and internal policies-some provide redundancy pay above the NES.

3) Consult Properly

• Notify affected employees early, explain reasons, and share relevant information.
• Invite feedback, consider alternatives (retraining, reduced hours, job sharing) and respond genuinely.

4) Assess Redeployment

• Search across your business and associated entities for suitable roles.
• Consider reasonable training and adjustments. Keep notes of roles assessed and outcomes.

5) Confirm Decision And Provide Notice

• Issue a written termination letter with the final date, notice (or payment in lieu), redundancy pay and other entitlements.
• Offer time off to attend interviews (if required by award/EA) and provide employment records on request.

6) Finalise Payments And Documents

• Calculate redundancy, notice, leave and long service leave accurately and pay on time.
• Consider a Deed of Release (often used for senior roles or where extra benefits are provided) and make sure your termination documents are in order.

Tax, Super And Other Payment Rules

Tax treatment matters and it’s easy to get wrong. In broad terms:

• Genuine redundancy payments typically include a tax-free component based on the employee’s years of service. Amounts above the tax-free cap are taxed as an Employment Termination Payment (ETP), often at concessional rates up to certain limits.
• Accrued annual leave and long service leave are taxed differently from redundancy pay-pay them out separately.
• Superannuation is generally not payable on redundancy pay itself, but the position can differ for other termination components. See our overview on super on termination payments and how it interacts with payment in lieu of notice.

Important: Tax rules change and individual circumstances vary. Treat the above as general information only-check current ATO guidance or speak with your tax adviser before processing payments.

Common Pitfalls (And How To Avoid Them)

• Skipping consultation: Even where the outcome seems inevitable, awards often require consultation. Failing to consult can underpin an unfair dismissal claim.
• Not exploring redeployment: You must actively consider reasonable redeployment across the business and associated entities, not just within the immediate team.
• Miscalculating entitlements: Double-check the NES scale (including the drop to 12 weeks at 10 years), base rate of pay, and service dates. If in doubt, use a redundancy calculator and get advice.
• Assuming the small business exemption covers everything: It exempts NES redundancy pay, but you still owe notice (or payment in lieu) and any award consultation duties. Contracts or policies may also promise more.
• Forgetting final pay components: Redundancy pay sits alongside notice, annual leave, long service leave and wages. Cross-check using our final pay guide.
• No paperwork trail: Keep clear records of consultation, role assessments, redeployment efforts and calculations. Good records resolve most disputes quickly.

Key Takeaways

• Redundancy pay is only owed for a genuine redundancy-you must consult (if required) and consider reasonable redeployment across your business and associated entities.
• Eligibility depends on service, employment type and business size; small businesses are generally exempt from NES redundancy pay but still owe notice and must follow award consultation rules.
• Use the NES scale to calculate the amount and remember the drop from 16 weeks to 12 weeks after 10 years of service.
• Process matters: consult properly, document decisions, assess redeployment and issue clear termination letters with accurate final pays.
• Tax and super rules differ across components; redundancy pay may include a tax-free part and amounts above the cap are typically taxed as an ETP-confirm current ATO rules.
• Avoid common errors by double-checking calculations, respecting consultation obligations and using robust termination documents where appropriate.

If you would like a consultation on redundancy payments and process, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.