Redundancy Payments In NSW: What Employers Need To Know

Making roles redundant is sometimes necessary as your business changes. In New South Wales (and across Australia), redundancy obligations are largely set out under the national employment system - and getting them right matters.

Handled well, redundancies can be respectful, legally compliant and low risk. Handled poorly, they can lead to disputes, higher costs and damage to your brand.

Below, we break down when redundancy pay applies, how to calculate it, who’s excluded, and the practical steps to follow in NSW so you can move forward with confidence.

What Is A Genuine Redundancy In NSW?

Most NSW employers are covered by the national system under the Fair Work Act 2009 (Cth). That means “genuine redundancy” has a specific definition and test.

The Genuine Redundancy Test

A dismissal is a genuine redundancy if:

• Your business no longer needs the employee’s job to be done by anyone because of operational changes (for example, a restructure, closure, outsourcing or new technology).
• You complied with any consultation obligations in an applicable modern award or enterprise agreement.
• Redeployment within your business (or an associated entity) was not reasonable in the circumstances.

If these elements aren’t met, a redundancy may be challenged as an unfair dismissal. The Fair Work Commission will consider factors such as consultation and redeployment efforts when assessing fairness, including those listed under section 387 of the Fair Work Act.

Consultation Obligations

Most modern awards require you to consult when major workplace changes are likely to have a significant effect on employees (like redundancies). Typically, this means notifying affected staff, sharing relevant information, discussing measures to avert or mitigate the adverse effects, and genuinely considering feedback.

NSW Context

While the redundancy pay rules come from national law, NSW employers should also keep an eye on state-based entitlements that can affect final pay (for example, long service leave under NSW legislation). We cover final pay components further below.

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

Not every termination attracts redundancy pay. Entitlements depend on the size of your business, the employee’s status and length of service, and the reason for the termination.

Small Business Exemption

Under the National Employment Standards (NES), employers with fewer than 15 employees (including the dismissed employee and any associated entities) are generally exempt from paying redundancy pay.

Employees Who Typically Receive Redundancy Pay

• Permanent full-time and part-time employees with at least 12 months’ continuous service (casuals are excluded).
• Employees whose roles are genuinely no longer required due to operational changes.

Common Exclusions

Redundancy pay usually does not apply to:

• Casual employees.
• Employees of a small business (fewer than 15 employees).
• Employees with less than 12 months’ continuous service.
• Fixed-term employees whose contract ends at the agreed time.
• Seasonal or task-based employees where the job ends as expected.
• Employees dismissed for serious misconduct.
• Employees where “ordinary and customary turnover of labour” applies (a narrow exception; get advice before relying on it).

Transfer Of Business And Associated Entities

Service with an associated entity may count towards service length for redundancy if there’s a transfer of business, which can affect payment calculations. If you’re buying or selling a business or moving staff between group companies, consider how prior service counts and whether offers of acceptable “other employment” impact redundancy liabilities.

How To Calculate Redundancy Payments

Redundancy pay under the NES is based on an employee’s continuous service and payable at their base rate of pay for ordinary hours. The scale ranges from 4 weeks’ pay (for 1-2 years of service) up to 16 weeks (for 9-10 years), then 12 weeks for 10+ years due to long service recognition in the formula. Some awards or enterprise agreements provide more generous amounts.

What “Base Rate Of Pay” Means

Base rate of pay excludes bonuses, loadings, allowances, overtime and penalty rates. Use ordinary hours only. If the employee’s hours have varied, calculate using their current ordinary hours (or the applicable industrial instrument’s method, if any).

Worked Example

Let’s say a permanent full-time employee in NSW has 4 years and 7 months’ continuous service, and a base rate of $1,200 per week. Under the NES, that typically aligns with 8 weeks’ redundancy pay. 8 x $1,200 = $9,600 redundancy pay (before tax). You would then add notice or payment in lieu of notice, plus accrued annual leave, and any long service leave due in NSW.

Award Or Agreement Variations

Check any applicable modern award or enterprise agreement. Some instruments include additional redundancy benefits or industry-specific formulas and may set out extra consultation steps or severance arrangements. If multiple sources apply, pay the most beneficial to the employee.

Tax And Super

Genuine redundancy payments may receive concessional tax treatment up to a tax-free limit, with any excess taxed as an employment termination payment (ETP). Superannuation is generally not payable on redundancy pay itself, but may be payable on other elements like payment in lieu of notice and superannuation depending on the circumstances. It’s sensible to confirm the ATO treatment and payroll processing before you finalise payments.

Notice, Final Pay And Other Termination Entitlements

Redundancy pay is just one part of what’s owed when employment ends. In NSW, you’ll also need to consider notice, accrued leave and any state-specific long service leave requirements.

Notice (Or Payment In Lieu)

Under the NES, employees are entitled to minimum notice based on service length, plus an extra week if the employee is over 45 with at least 2 years’ service. You can ask the employee to work through the notice period, place them on garden leave, or provide payment in lieu of notice. Ensure you verify the correct notice using your contract and any applicable award, or check a guide to calculating employee notice periods.

Final Pay Components

Final pay typically includes:

• Accrued but untaken annual leave (with leave loading, if applicable under an award or agreement).
• Long service leave (NSW has its own legislation; eligibility depends on service length and prior service). A practical way to check figures is using a long service leave calculator as a starting point.
• Redundancy pay (if applicable).
• Notice or pay in lieu of notice.
• Any outstanding wages, allowances or TOIL/rostered days owing.

Timing matters. Many awards require final pay within a set timeframe. To ensure completeness and accuracy, follow a checklist for final pay before processing payroll.

Sick Leave And Redundancy

Unused personal/carer’s leave (sick leave) is not paid out on termination under the NES. However, it can still interact with your process (for example, if an employee is on sick leave during consultation). It’s wise to understand how redundancy and sick leave align so your timeline and communications remain fair and compliant.

Separation Documentation

Clear, written communication helps prevent misunderstandings. Depending on the situation, you may also consider a tailored employee separation agreement to record settlement terms (for example, confidentiality, releases, and restraints), in addition to required termination letters and certificates.

Consultation, Process And Documentation Best Practice

A sound, human-centred process reduces risk and supports your team through change. Here’s a practical roadmap many NSW employers follow.

1) Plan Your Restructure

Document which roles (not people) are affected and why. Gather financial or operational rationale for change, outline proposed timelines, and map any redeployment opportunities within your business and associated entities.

2) Check Industrial Instruments And Contracts

Identify any applicable modern awards, enterprise agreements and individual contracts. These may set out consultation clauses, selection criteria, severance rules, and timing obligations. Apply the most beneficial provision where obligations overlap.

3) Run A Genuine Consultation

Invite affected employees to a meeting, explain the proposed changes and potential impacts, and provide relevant details in writing. Allow time for feedback and genuinely consider alternatives (retraining, reduced hours, redeployment). Keep file notes of meetings and decisions.

4) Decide And Communicate Outcomes

Once you’ve considered feedback, confirm decisions in writing. Include termination dates, notice and redundancy pay (if any), and any entitlements. Provide practical information (return of property, outplacement support, references) and a respectful line of contact for questions.

5) Finalise Payments And Payroll

Calculate entitlements accurately, reconcile balances and ensure super, PAYG and any concessional tax treatment for genuine redundancy are correctly processed. Issue payslips and separation certificates (if required by Services Australia) and keep records.

6) Use The Right Documents

Templates reduce errors and speed things up. Many employers rely on a curated set of letters and checklists in a Redundancy Document Suite and, for complex restructures, seek tailored Redundancy Advice before announcements are made.

7) Care For Culture And Risk

Be mindful of how you select roles for redundancy. Use objective criteria, avoid discrimination, and consider whether redeployment or training could reasonably preserve employment. If you require staff to remain available during their notice period, consider whether garden leave fits your operational and confidentiality needs.

Common Pitfalls And How To Avoid Disputes

Even well-intended restructures can go wrong without the right process. Here are frequent issues and how to reduce risk.

Skipping Consultation

Failing to consult where required is one of the most common reasons a redundancy decision is challenged. Even if it won’t change the outcome, genuine consultation must occur. Provide information, invite feedback, and consider alternatives before finalising the decision.

Not Exploring Redeployment

You must consider whether there are suitable roles within the business or associated entities. This doesn’t mean creating a new job, but you should assess vacancies and reasonable retraining options and keep a record of that assessment.

Mixing Up Poor Performance And Redundancy

Redundancy is about the job no longer being required - not an alternative to performance management. If the role still exists and the person is simply underperforming, you should follow a proper performance process instead. Blending the two can create unfair dismissal and adverse action risks.

Incorrect Entitlements

Getting the calculation wrong (for example, miscounting service, ignoring award enhancements, or mishandling tax treatment) leads to disputes and back-payments. Double-check the formula, ensure you’re applying the most beneficial instrument, and reconcile balances before you pay final pay.

Inadequate Documentation

Clear letters, a consistent script, and accurate payroll records go a long way. Provide written notice, outline entitlements, and keep detailed notes of consultation and redeployment steps. Where appropriate, use an employee separation agreement to record additional terms and protect confidential information.

Timing And Communication

Surprises erode trust. Break the news respectfully and privately, give reasonable timeframes, and set out the next steps and support. If you’re paying in lieu of notice, be ready to process payment in lieu of notice promptly and provide instructions about property returns and system access.

Overlooking Special Cases

Part-time employees with fluctuating hours, employees on parental or personal leave, and transfers between associated entities can complicate calculations and process timing. If you’re unsure, obtain early Redundancy Advice and build that guidance into your plan before commencing consultation.

Key Takeaways

• In NSW, redundancy obligations largely come from the national system (NES) - focus on genuine redundancy, consultation, and reasonable redeployment.
• Redundancy pay applies to eligible permanent employees based on continuous service; small businesses (fewer than 15 employees) are generally exempt.
• Calculate redundancy at base rate for ordinary hours, then add notice (or payment in lieu), annual leave, and any NSW long service leave due.
• Follow a documented process: plan, check awards and contracts, consult genuinely, assess redeployment, communicate decisions in writing, and reconcile final pay.
• Avoid common pitfalls like skipping consultation, mixing performance issues with redundancy, and miscalculating entitlements.
• Use the right templates and agreements - a Redundancy Document Suite and, where needed, an employee separation agreement - to reduce risk and keep the process consistent.

If you’d like a consultation on managing redundancy payments in NSW (including calculations, letters and process planning), you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.