Redundancy Rules For Small Businesses: Employer Obligations And Under-15 Exemption

Running a small business often means you’re making tough calls with limited time, tight margins and a close-knit team. When work slows down, a contract ends, or your business model changes, you might reach a point where you’re considering redundancy.

This is where things can feel confusing quickly: What counts as a “small business” for redundancy? Do you have to pay redundancy pay? What if you have casuals, contractors, or staff across related entities? And what steps do you need to take so the redundancy is actually lawful?

In this guide, we’ll walk you through redundancy in a small business context in Australia, including the under-15 employee rule, what you still need to do even if you don’t owe redundancy pay, and the common legal traps that lead to disputes.

What Does “Redundancy” Mean For A Small Business Employer?

In simple terms, redundancy is about the role no longer being needed - not the person being “let go” because of performance or conduct.

For most small business owners, redundancy comes up because:

• you’ve lost a key client or contract,
• you’re closing a location or reducing operating hours,
• you’re automating tasks or changing systems,
• you’re restructuring and merging duties across roles, or
• you need to reduce overheads to keep the business viable.

Genuine Redundancy (Why It Matters)

Under the Fair Work Act, an employee may not be able to bring an unfair dismissal claim if the dismissal is a genuine redundancy. While the legal tests can get detailed, the core idea is straightforward: if you want to rely on redundancy, you need to show the job is no longer required and you’ve followed a fair process.

As a practical checklist, a redundancy is more likely to be treated as genuine where:

• the job is no longer required (because of operational change);
• you have complied with any consultation obligations (usually set out in a modern award or enterprise agreement); and
• redeployment is not reasonable (including within any associated entities, where relevant).

This is also why redundancy is not a “shortcut” for managing a difficult employee. If the real issue is performance, you’ll usually be better served by performance management and proper documentation than calling it redundancy.

Redundancy Rules For Small Businesses: What Counts As “Under 15 Employees”?

The key reason redundancy rules for small businesses get talked about so often is this: small business employers are generally exempt from paying redundancy pay under the National Employment Standards (NES).

But that exemption only applies if you truly are a small business employer for the purposes of the Fair Work Act.

So, What Is A “Small Business Employer”?

In Australia, a small business employer is generally one that employs fewer than 15 employees at the relevant time (often the time you give notice of termination).

However, it’s not always as simple as counting your full-time staff. When you’re working out whether the under 15 employees rule applies for redundancy, keep these practical points in mind:

• All employees count - full-time, part-time and regular casual employees are usually counted.
• Casual employees generally count if they are employed on a regular and systematic basis (even if their hours vary).
• Associated entities can matter - depending on your structure, employees across connected businesses may need to be included when determining if you’re under 15.
• Employees being terminated may still be counted for the purpose of working out whether you are under the threshold at that time.

If you’re right on the edge (for example, 13-16 employees depending on the week), it’s worth getting advice before you proceed. A mistake here can be expensive, because if you’re not actually a small business employer, redundancy pay may apply.

Do Contractors Count?

Genuine independent contractors are not employees and generally don’t count toward the under-15 employee threshold.

That said, “contractor” labels are not decisive - it depends on the real working relationship. If you treat someone like an employee (set hours, direct their work, they’re integrated into your business), there’s a risk they may legally be an employee, even if they invoice you.

Redundancy Pay For Small Businesses: Do You Have To Pay Redundancy?

This is the big question most employers ask: do small businesses have to pay redundancy pay?

Often, the answer is no - but with important conditions.

When Redundancy Pay Usually Does Not Apply

If you are a small business employer (under 15 employees), you are generally not required to pay redundancy pay under the NES.

This is why redundancy and the under 15 employees threshold come up so often. The exemption can significantly reduce the direct cost of making roles redundant.

When You Might Still Owe Redundancy Pay (Even Under 15 Employees)

Even if you qualify as a small business employer, redundancy pay may still be payable if it arises from another source, such as:

• an enterprise agreement that provides redundancy pay;
• an employment contract that promises redundancy pay or a severance benefit; or
• a company policy that has become contractual in effect (less common, but possible depending on wording and how you apply it).

In many cases, modern awards largely mirror the NES position on redundancy pay and include the same small business employer exemption. However, awards can still impose important process obligations (like consultation) and it’s worth checking the applicable instrument for your employee’s role and classification.

If you’re unsure what applies to your team, it’s a good idea to check the relevant modern award and your Employment Contract terms before making any commitments.

What About “Redundancy” For Casual Employees?

Casual employees generally don’t receive redundancy pay under the NES.

However, a casual can still bring certain claims depending on the circumstances (for example, if they allege the redundancy wasn’t genuine or was discriminatory). And if the casual is actually a permanent employee in substance, you can have a bigger issue than redundancy pay.

Small Business Employer Redundancy Obligations (Even If Redundancy Pay Isn’t Owed)

Even where redundancy pay is exempt, a small business still has important legal obligations when making a role redundant.

Think of it this way: you may be exempt from redundancy pay, but you are not exempt from doing the process properly.

1) Consultation Requirements (Awards And Enterprise Agreements)

Many modern awards require you to consult with employees when you’re planning major workplace change (including redundancies).

Consultation commonly includes:

• informing the employee(s) about the proposed changes and the reasons,
• discussing the expected impact (including on hours, duties, and ongoing employment),
• inviting the employee to give their views, and
• genuinely considering any feedback (including alternatives to redundancy).

This is one of the most common “missed steps” we see in small business redundancy situations - especially where the owner is trying to move quickly or assumes consultation is optional.

2) Notice Of Termination (Or Payment In Lieu)

Redundancy usually involves termination of employment, which triggers minimum notice requirements under the NES (and sometimes additional notice under a contract, award, or enterprise agreement).

If you don’t want the employee to work out their notice period, you may be able to provide payment in lieu of notice, as long as you calculate it correctly and meet any applicable rules.

Notice is separate to redundancy pay. So even if your small business doesn’t owe redundancy pay, you may still owe notice (or payment in lieu) and other final entitlements.

3) Final Pay And Accrued Entitlements

When employment ends due to redundancy, you generally still need to pay out:

• any wages owing up to the end date (including for any rostered hours already worked),
• accrued but unused annual leave, and
• other entitlements required under the employee’s industrial instrument (if applicable).

If the employee is on leave or becomes unwell during the process, timing and entitlement issues can arise. In some cases, employers also ask how to handle redundancy and sick leave when they overlap.

4) Redundancy Selection Must Be Defensible

In a small team, redundancy decisions can feel personal - and that’s exactly why your selection criteria should be clear and defensible.

If you have more than one person in similar roles, you should be able to explain why the particular role (or employee) was selected. Common selection factors might include:

• skills and qualifications needed for the “new” structure,
• which tasks remain and which tasks are ceasing,
• business needs and operational coverage, and
• objective performance data (handled carefully and consistently).

Be cautious: redundancy should not be used as a substitute for managing misconduct or ongoing underperformance. If your documentation suggests performance was the real driver, the redundancy can be challenged.

5) Consider Redeployment (Including Practical Alternatives)

Part of treating a redundancy as genuine is considering whether the employee could be redeployed into another suitable role.

For a small business, redeployment doesn’t necessarily mean creating a brand-new position. It can include:

• moving the employee into a vacant role,
• offering reduced hours (with agreement),
• retraining for a role that will exist after restructuring, or
• moving to a related business within your group (if applicable).

If redeployment is not reasonable, it’s still worth documenting that you considered it and why it wasn’t viable.

Common Small Business Redundancy Mistakes (And How To Avoid Them)

Redundancy is one of those areas where even well-intentioned employers can end up in disputes, simply because the process was rushed or poorly documented.

Here are common pitfalls we see in redundancy and small business scenarios.

Mixing Up Redundancy With Termination For Performance

If you’re letting someone go because they aren’t meeting expectations, redundancy is usually not the right pathway.

In those cases, you’ll typically want to run a fair performance process (with warnings and opportunities to improve). If you’re already mid-process, suddenly switching to “redundancy” can look suspicious.

Assuming “Under 15 Employees” Automatically Protects You

The under-15 employee rule relates to redundancy pay under the NES - it doesn’t automatically protect you from:

• award consultation obligations,
• general protections claims,
• discrimination claims, or
• other contractual disputes.

Small business redundancy laws still expect you to act lawfully and fairly.

Forgetting About Award Coverage

Modern awards can add layers of rules around consultation, notice, and pay. If you’re unsure whether an award applies (or which one), getting help with award compliance can prevent issues before they start.

Incorrect Calculations (Notice, Leave, Final Pay)

Final pay is one of the most common flashpoints in employment disputes.

It’s worth double-checking:

• the employee’s correct classification and pay rate,
• leave balances and any leave loading obligations,
• the correct notice period (and whether extra notice applies due to age/service), and
• any allowances or entitlements triggered on termination.

If redundancy pay does apply (for example, you’re not actually under 15 employees), you may also want a quick estimate using a redundancy calculator - noting that calculations still need to be checked against the relevant legal instrument.

Poor Documentation

If a redundancy is challenged, your documentation matters.

Helpful documents can include:

• a short written business case explaining the operational reasons for change,
• notes of consultation meetings,
• a redundancy letter confirming termination date, notice, and final entitlements, and
• internal records showing you considered redeployment.

You don’t need to write a novel - but you do want a clear paper trail showing the redundancy was a business decision, not a personal one.

How To Plan A Redundancy In Your Small Business (A Practical Process)

If you’re feeling overwhelmed, it helps to treat redundancy like a project with clear steps. Here’s a practical process many small business owners follow to manage redundancy lawfully and with minimal disruption.

Step 1: Confirm The Reason Is Operational (Not Performance)

Start by clearly identifying what’s changing in your business and why the role is no longer required.

A simple internal note can help, like: “We have lost Client X and no longer require a full-time admin role. Tasks will be absorbed by the operations manager and automated through accounting software.”

Step 2: Confirm Whether You Are Under 15 Employees

Before you make any promises about redundancy pay, check the headcount carefully, including regular casuals and any connected entities.

This is the point where many employers realise they were actually at (or above) 15 employees when everything is counted properly.

Step 3: Check The Employee’s Coverage (Contract, Award, Agreement)

Review:

• the employee’s contract terms,
• whether a modern award applies (and any consultation obligations), and
• any enterprise agreement terms.

Step 4: Consult Before You Finalise The Decision (Where Required)

Consultation is often legally required and almost always commercially sensible. Even in a small team, giving someone the chance to understand what’s happening (and to propose alternatives) can reduce conflict significantly.

Step 5: Confirm Termination Details In Writing

Your redundancy letter should clearly set out:

• the termination date,
• notice (or payment in lieu),
• final pay details (and what will be paid out), and
• any redundancy pay (if applicable).

Step 6: Process Final Pay Correctly And On Time

Pay final wages and entitlements on the correct schedule (this can depend on the award, agreement, and payroll cycle). Late final pay can create avoidable disputes even where the redundancy itself was valid.

Key Takeaways

• Redundancy is about the role, not the person - your decision needs to be driven by operational change, not performance or conduct concerns.
• Small business redundancy pay rules are tied to the under-15 employee threshold, but you need to count employees carefully (including regular casuals and potentially employees across related entities).
• Even if redundancy pay isn’t owed, other obligations still apply - including notice (or payment in lieu), final pay, and often award-based consultation requirements.
• A redundancy should be “genuine”, which usually means the job is no longer required, consultation obligations are met, and redeployment isn’t reasonable.
• Awards, contracts and policies can change the outcome - even under 15 employees, redundancy pay may still be payable depending on an enterprise agreement, contract terms, or another enforceable arrangement.
• Clear documentation and a fair process reduce risk and can help protect your business if the redundancy is challenged.

This article is general information only and does not constitute legal advice. If you’d like help managing redundancy in your small business (including confirming whether you fall under the under-15 employee rule and preparing the right documents), you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.