Voluntary Redundancy Explained: Employer’s Guide In Australia

Considering changes to your workforce? Voluntary redundancy can help you right-size your business while maintaining trust and morale across your team.

In this guide, we break down what voluntary redundancy means in Australia, how it differs from compulsory redundancy, when it’s appropriate to offer, the steps to run a compliant process, what to include in a redundancy package, and the key legal requirements and exemptions to keep in mind.

Our goal is to help you manage voluntary redundancies lawfully, sensitively and efficiently, so you can support your people and protect your business through change.

What Is Voluntary Redundancy?

Voluntary redundancy is when you invite employees to express interest in leaving their job in exchange for a redundancy payment (a “package”), rather than selecting and dismissing them. It’s commonly used during restructures, downsizing or when certain functions are no longer required.

The important point is choice: the employee elects to accept the offer. You retain the discretion to accept or decline expressions of interest to ensure ongoing capability and business continuity.

Core Features

• Employer-initiated invitation: You identify a bona fide operational need to reduce roles and invite eligible staff to volunteer.
• Employee choice: Employees can put their hand up, and you decide whether to accept the EOI based on fair, objective criteria.
• Package payable: Volunteers receive a redundancy package consistent with legal entitlements and any additional incentives you decide to offer.

Voluntary programs can be a constructive alternative to forced redundancies, but they still require a genuine redundancy situation and careful compliance with Australian employment laws.

Voluntary vs Involuntary Redundancy

Both voluntary and involuntary redundancy can be lawful, provided the role is genuinely no longer required and the right process is followed. The big difference is how the employee exits.

• Voluntary redundancy: Employees choose to accept an offer to leave with a package; you decide which volunteers to accept.
• Involuntary (or “forced”) redundancy: You select the roles to be made redundant and terminate employment following a selection process.

For both pathways, a redundancy must be “genuine” to reduce unfair dismissal risk. In practice, this means the job is no longer required due to operational changes and redeployment is not reasonable, including within associated entities. For a deeper dive into the legal definition, see genuine redundancy.

When Should You Offer Voluntary Redundancy?

Offer voluntary redundancy when you need permanent structural adjustments that are driven by business needs, not performance or conduct issues. Typical triggers include:

• Restructuring for efficiency, automation or digitisation
• Changes to products, services or technology that reduce the need for certain roles
• Mergers or acquisitions and subsequent right-sizing
• Economic downturn, loss of major clients or long-term reduction in demand
• Business relocation or closure of a site, function or business unit

Under Australian law, redundancies must be genuine. You should consider reasonable redeployment options across your group, including associated entities, before finalising decisions.

How To Run A Compliant Voluntary Redundancy Process

A well-planned process reduces risk and supports fair outcomes. Below is a practical sequence most employers follow.

1) Build The Business Case

Document the operational reasons for change, the roles impacted, the skills you need to retain, and the proposed timeframes. This forms the backbone of your communications and decision-making criteria.

2) Check Consultation Obligations

Most consultation requirements arise under modern awards or enterprise agreements. Before introducing major workplace change, you’ll generally need to consult affected employees (and their representatives) about the reasons, likely effects and measures to mitigate adverse impact.

For award- or agreement-free employees, there may be no formal consultation clause, but it’s best practice to consult and communicate early and clearly.

3) Design Eligibility And Selection Parameters

Set out which roles or areas are in scope, eligibility criteria, the package components, how to express interest, and how you’ll assess applications. Your criteria should be objective, consistent and non-discriminatory.

4) Communicate The Offer

Provide an information pack and Q&A covering eligibility, payments, timing, how to apply, and what happens if too few or too many people volunteer. Be clear that expressions of interest do not guarantee acceptance.

5) Assess Expressions Of Interest

Evaluate EOIs against your selection criteria, workforce plans and the need to retain critical skills. Keep a record of your reasoning. If needed, you can accept some EOIs and decline others.

6) Confirm Outcomes In Writing

Issue outcome letters. For accepted volunteers, set out notice arrangements (or payment in lieu of notice), termination date, and a breakdown of payments and accrued entitlements. Many employers also use a Deed of Release to document final terms and reduce the risk of future disputes.

7) Pay Entitlements And Support Transitions

Ensure all payments are correct and made on time. If feasible, offer outplacement, EAP access and job-search support. These steps can help maintain trust across the broader team.

Practical Tips To Keep Things On Track

• Plan your skills mix first so you don’t lose critical capability to an unexpected wave of volunteers.
• Stick to objective criteria and document decisions to support fairness and compliance.
• Keep communications simple, empathetic and consistent; provide a single source of truth for FAQs.
• Use a clear suite of termination documents so each step is recorded properly.

What’s In A Voluntary Redundancy Package?

Your package must meet minimum legal entitlements, and you can add incentives to encourage volunteers. Components typically include:

Redundancy Pay (Severance)

Statutory redundancy pay under the National Employment Standards (NES) is based on continuous service, with no entitlement for service under 12 months. Note: some employees are excluded from NES redundancy pay (see the Exemptions section below). You can also use an internal tool (or direct staff to a public calculator) to estimate payments; our redundancy calculator is a useful starting point.

Notice Or Payment In Lieu

Provide the required notice under the NES or any applicable award/agreement, or pay payment in lieu of notice if you decide the employee won’t work through the notice period.

Accrued Entitlements

Pay out accrued annual leave and long service leave in accordance with state or territory laws and any applicable industrial instrument. Generally, personal/carer’s leave is not paid out on termination unless an agreement says otherwise.

Extra Incentives (Optional)

Some employers offer additional sums (often called ex gratia payments), extended benefits for a limited period (e.g. health insurance) or outplacement support. If you offer extras, be clear about eligibility, timing and any conditions (e.g. signing a deed).

Tax Treatment Of Voluntary Redundancy

Genuine redundancy payments can receive concessional tax treatment up to ATO thresholds, with different treatment for amounts above the cap and for additional incentives. Tax outcomes vary by individual circumstances and may change over time.

Sprintlaw does not provide tax advice. It’s best to have employees obtain advice from an accountant, and for employers to confirm treatment with payroll and tax advisers before processing payments.

Legal Requirements, Exemptions And Risks

Voluntary redundancy programs sit within the same legal framework as compulsory redundancies. Here are the key compliance points for employers in Australia.

1) Genuine Redundancy

The role must be genuinely no longer required due to operational changes and redeployment must not be reasonable, including within associated entities. Where applicable, follow any consultation obligations in awards or agreements. Understanding the elements of genuine redundancy will help reduce the risk of unfair dismissal claims.

2) Consultation Duties

Most consultation obligations arise from modern awards and enterprise agreements. Typically, you must inform affected employees, discuss the changes and their effects, and consider measures to mitigate adverse impacts. Keep records of meetings and correspondence.

3) Notice And Termination Documents

Provide the correct notice (or pay in lieu) and clear written communication outlining entitlements, termination date and any conditions. Using structured termination documents helps ensure consistency and compliance.

4) Accrued Entitlements And Superannuation

Pay accrued annual leave and, where applicable, long service leave. Superannuation is generally not payable on redundancy pay, but it may be payable on some termination components (like ordinary time earnings during notice). Confirm with your payroll or superannuation adviser.

5) Non-Discrimination And Fair Criteria

Set and apply objective, non-discriminatory criteria when accepting or declining EOIs. Avoid decisions based on protected attributes (e.g. age, sex, disability), and document your rationale to mitigate adverse action risk.

6) NES Exemptions From Redundancy Pay

Not everyone is entitled to redundancy pay under the NES. Exclusions include (but aren’t limited to):

• Employees of a small business employer (fewer than 15 employees)
• Casual employees
• Fixed-term employees whose contract ends at the agreed time or on a specified event
• Apprentices and trainees (in certain circumstances)
• Employees with less than 12 months’ service (NES table starts at 1 year)

Note: enterprise agreements or contracts may provide more generous entitlements than the NES. Always check the applicable instrument for your workforce.

7) Redeployment Considerations

To meet the test for a genuine redundancy, you must consider reasonable redeployment in your business and across your group. This includes assessing roles with associated entities, the suitability of available roles, and the employee’s skills and location.

8) Deeds And Releases

It’s common to use a Deed of Release in a voluntary redundancy program. A well-drafted deed can clarify final entitlements, confidentiality and non-disparagement expectations, the return of property, and the release of claims.

Common Pitfalls To Avoid

• Offering a program without a clear business case or selection framework
• Overlooking award/EA consultation obligations
• Misapplying the NES redundancy pay table or exemptions
• Forgetting that notice must still be given (or paid in lieu)
• Failing to consider redeployment within associated entities
• Using selection criteria that could be seen as discriminatory

Key Takeaways

• Voluntary redundancy invites employees to exit with a package and can be a respectful way to right-size your business during change.
• To be lawful, a redundancy must be genuine and, where applicable, follow consultation obligations in awards or enterprise agreements.
• Packages usually include statutory redundancy pay, notice or payment in lieu, and accrued leave, with optional incentives like ex gratia payments.
• Check NES exemptions: small business employers, casuals, fixed-term employees and others may have no redundancy pay entitlement.
• Consider redeployment within your business and associated entities to meet the genuine redundancy test and reduce legal risk.
• Use clear communications and robust documents (including a Deed of Release where appropriate) and keep thorough records of decisions.
• Tax treatment of genuine redundancy payments can be concessional, but individual outcomes vary - have an accountant confirm the position before processing.

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