Small Business Redundancy in Australia: What Employers Should Know

As a small business owner, making roles redundant is never easy. It often comes after tough trading conditions or a genuine restructure. Still, when redundancy is on the table, you need a clear, compliant process to protect your business and treat people fairly.

In Australia, there are special rules for small business redundancy. Some obligations are lighter (for example, redundancy pay may not apply to small businesses), but many steps still apply-particularly consultation and proper notice.

In this guide, we’ll walk you through what “genuine redundancy” means, when the small business redundancy exemption applies, a step-by-step process to follow, how to calculate entitlements, and the key documents to have in place.

What Is Redundancy For Small Business?

Redundancy happens when a job is no longer required to be done by anyone because of operational changes-such as a restructure, closure of a function, automation, or a significant downturn. It’s not about an employee’s performance or conduct.

To be a “genuine redundancy” under Australian law, you generally need to show that the job is no longer required and that you complied with any consultation obligations in an applicable modern award or enterprise agreement, and that redeployment within your business (or associated entities) was not reasonable. You can read more about these requirements under Section 389 of the Fair Work Act.

Why does “genuine redundancy” matter? Because if a dismissal isn’t a genuine redundancy, the employee could bring an unfair dismissal claim. Getting the process right reduces this risk significantly.

Does The Small Business Redundancy Exemption Apply To You?

Under the National Employment Standards (NES), businesses with fewer than 15 employees are generally exempt from paying redundancy pay. This is often referred to as the small business redundancy exemption.

Here’s how to assess whether it applies to your business:

• Headcount threshold: Count all employees employed at the time (across associated entities). Regular and systematic casuals are usually included in the headcount; truly irregular casuals typically are not.
• Timing matters: If you are right on the threshold, confirm your numbers just before commencing the process.
• Still follow the process: Even if redundancy pay doesn’t apply, you’ll still need to consult (if an award or agreement applies), consider redeployment, and provide the correct notice or pay in lieu.

Check any applicable Modern Awards or enterprise agreements for consultation rules and any extra obligations. If an award applies, you’ll usually need to consult before making a final decision, not after.

Step-By-Step: How To Run A Redundancy Process Lawfully

1) Build The Business Case

Document why roles are no longer required. This might include financial performance, loss of key clients, technology changes, or a restructure to streamline operations.

Keep notes of the options you considered (for example, reduced hours or reassigning tasks) and why redundancy is necessary. These records support the “genuine redundancy” basis if your process is later questioned.

2) Identify Roles (Not People)

Redundancy is about roles, not individuals. Clearly define which positions are affected and why. If only some roles within a group are affected, use objective, non-discriminatory selection criteria (skills, qualifications, business need).

3) Check Consultation Obligations

If an award or enterprise agreement applies, follow its consultation steps. Typically, you need to give affected employees written information about the proposed change, invite their feedback, and genuinely consider measures to mitigate adverse effects.

Consultation is a core element of a genuine redundancy under Section 389 of the Fair Work Act, so don’t skip it. Doing it properly often improves outcomes and reduces disputes.

4) Consider Redeployment

Explore whether there are suitable roles for affected employees within your business or any associated entities. Roles can be at a different level, location, or even slightly different in duties-what matters is whether it’s reasonable to redeploy.

Document which roles you considered and why they were or weren’t suitable.

5) Decide And Notify

Once consultation is complete and you have considered redeployment, you can confirm the redundancy decision. Provide written notice (and explain the decision), or make a Payment In Lieu Of Notice if you prefer the employee to finish immediately. The notice period depends on the employee’s length of service (and whether they’re over 45, which can add one week).

6) Calculate Entitlements

Work out what is owed in final pay, including any redundancy pay (if the small business exemption doesn’t apply), payment for untaken annual leave, long service leave (state/territory rules vary), and any outstanding wages or allowances.

For a practical checklist of what to include, see Calculating Final Pay. If you choose to pay in lieu of notice, confirm superannuation treatment-our guide on Do You Pay Super On Termination Payments? explains when super applies.

7) Issue The Right Documents

Provide a formal redundancy letter, a statement of service (if requested), and payslips or a breakdown of final pay. If applicable, include details about the small business redundancy exemption (so the employee understands why redundancy pay doesn’t apply).

8) Support The Transition

Offer reasonable time to gather personal items, consider a reference, and return company property. Clear, respectful communications go a long way in maintaining goodwill and reducing risk.

How To Calculate Redundancy Pay And Final Pay

If you are not exempt as a small business employer, redundancy pay under the NES is based on years of continuous service with your business. The more years of service, the higher the number of weeks’ redundancy pay. Award or agreement terms can add obligations on top of the NES, so always cross-check.

To estimate the payment quickly, you can use a Redundancy Calculator as a starting point. Then sense-check your result against the applicable award/enterprise agreement, the NES, and any contractual terms.

Final pay should typically include:

• Notice (worked or paid in lieu) according to length of service.
• Accrued but untaken annual leave, plus leave loading if applicable.
• Long service leave, depending on your state or territory rules.
• Any redundancy pay (unless the small business exemption applies).
• Other contractual amounts (bonuses or commissions, where earned/vested).

If you go down the pay-in-lieu route, confirm the correct treatment for super and tax. The articles on termination payments and superannuation and payment in lieu provide helpful context you can share with payroll.

Risks To Watch: Genuine Redundancy, Unfair Dismissal And Consultation

Most legal risk stems from either a non-genuine redundancy or poor process. Key issues include:

• Not consulting properly under an award/agreement. If an award applies, consultation is mandatory before a final decision. Consider employee feedback and document your responses.
• Not considering reasonable redeployment. Keep records of roles assessed and why they weren’t suitable.
• Replacing the redundant role soon after. If you rehire into a similar role shortly after, it can undermine the “genuine” nature of the redundancy.
• Using redundancy to address performance. If the real reason is performance, use a performance management process instead-and ensure your Modern Awards obligations are met.
• Discriminatory selection. Apply objective criteria and avoid decisions based on protected attributes.

When in doubt, check your process against the benchmarks for “genuine redundancy” in Section 389 of the Fair Work Act. If your situation is complex, getting tailored Redundancy Advice early can save time and cost later.

Practical Tips For Small Business Employers

• Plan your timeline. Build in time for consultation, consideration of feedback, and redeployment checks before any final decision.
• Communicate clearly. Give employees straightforward written information about what’s proposed, why it’s necessary, and how it impacts them.
• Keep good records. Save copies of consultation notices, meeting notes, selection criteria, redeployment searches, and final letters.
• Be consistent. Apply the same selection criteria to everyone in the affected group and avoid subjective or inconsistent measures.
• Coordinate payroll early. Confirm how you’ll handle leave balances, notice, super, and tax so final pay is accurate and on time.
• Support respectfully. Offer reasonable time off to attend interviews or access to a referee-small gestures can make a big difference.

What Documents Should You Have In Place?

Having templates ready can make a difficult process smoother and safer. Consider preparing or updating:

• Employment Contract: Clear terms around notice, duties and flexibility make changes easier to manage down the track.
• Consultation Letter: A written proposal to consult with affected employees, setting out what’s changing and inviting feedback.
• Redundancy Letter: Formal confirmation that the role is redundant and the employment will end, with details of notice and entitlements.
• Final Pay Breakdown: An itemised statement covering notice, annual leave, long service leave and any redundancy pay.
• Selection Criteria/Matrix: An objective framework that explains how you assessed which roles are affected (if only some roles are being made redundant).
• Policies: Up-to-date HR policies that support consultation and respectful workplace conduct.

If you need ready-to-use templates tailored to Australian law, our Redundancy Document Suite and our broader Employee Termination Documents Suite can help you implement a compliant process with the right paperwork.

Small Business Redundancy FAQs

Do Small Businesses Always Avoid Redundancy Pay?

Often-but not always. If you have fewer than 15 employees (including across associated entities and some regular casuals), you’re usually exempt from redundancy pay under the NES. Still, you must meet consultation and notice obligations, and you must consider redeployment. Check applicable Modern Awards too, as they can add requirements.

Can I Pay Out Notice Instead Of Having The Employee Work It?

Yes. Many employers choose to make a Payment In Lieu Of Notice, especially if there’s no work available or to help both parties move on quickly. Ensure your final pay calculation is correct and consider super and tax implications.

How Do I Work Out Final Pay Accurately?

Final pay usually includes notice (worked or paid in lieu), accrued annual leave (plus any loading), long service leave, and redundancy pay if applicable. A helpful starting point is our guide to Calculating Final Pay.

What If The Employee Is On Sick Leave Or Has A Medical Certificate?

You can still proceed with a genuine redundancy if the role is genuinely no longer required, but you must continue to follow a fair and lawful process, including consultation and correct notice. The reason for ending employment must be the redundancy, not the leave.

Key Takeaways

• Redundancy in a small business must be “genuine”: the role is no longer required, you consult if an award applies, and redeployment isn’t reasonable.
• The small business redundancy exemption generally removes redundancy pay where you have fewer than 15 employees-but you still need to consult, provide notice, and finalise entitlements.
• Follow a clear process: build the business case, consult, consider redeployment, decide and notify, then calculate and pay final entitlements on time.
• Use objective selection criteria, document everything, and communicate respectfully to reduce legal and people risks.
• Have the right documents ready-consultation and termination letters, selection criteria, and contracts-or use a tailored Redundancy Document Suite to streamline the process.
• If anything is complex or contested, get early advice to check your process against genuine redundancy requirements and confirm entitlement calculations.

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