Voluntary Redundancy In NSW: Employer Steps And Legal Requirements

When your business needs to reduce headcount, “redundancy” can be one of the toughest topics to navigate - not just emotionally, but legally and operationally too.

In NSW, small businesses often consider voluntary redundancy as a more collaborative way to restructure, compared to forcing redundancies. Done well, it can help you manage costs, preserve culture, and reduce the risk of disputes. Done poorly, it can create serious legal exposure (including unfair dismissal and underpayment claims).

This guide breaks down how a voluntary redundancy process in NSW typically works, what you need to think about under the Fair Work rules, and how to run a practical, compliant process that protects your business.

What Is Voluntary Redundancy (And How Is It Different To A “Normal” Redundancy)?

A redundancy happens when a role is no longer required to be performed by anyone - usually because of operational changes like a downturn, restructure, automation, outsourcing, or site closure.

Voluntary redundancy is where you invite eligible employees to express interest in leaving on redundancy terms (often with an incentive). You’re still making a business decision to reduce roles, but you’re giving employees the option to nominate themselves.

From an employer perspective, voluntary redundancy can be useful because it may:

• reduce conflict by giving employees more choice
• help avoid the “why me?” issue where you’re selecting individuals
• support a faster restructure if the right people volunteer
• lower legal risk if the process is structured and consistent

But it’s important to keep in mind: a voluntary redundancy is still a redundancy. You still need to ensure the role is genuinely no longer required, and that you follow consultation and payment rules that apply to your workforce.

If you’re weighing up redundancy options generally, it can help to understand the broader framework around redundancy and common compliance traps.

Voluntary Redundancy Still Needs To Be “Genuine”

One common mistake is thinking you can offer voluntary redundancy as a way to “encourage” someone to leave even when the role is still needed.

If the job is still required and you simply want to exit a particular employee, redundancy is usually not the right pathway. That can create risk of an unfair dismissal claim.

NSW-Specific Notes

Most redundancy rules (including redundancy pay under the National Employment Standards) apply nationally under the Fair Work Act, including in NSW. Where NSW can become particularly relevant is with long service leave and some practical aspects of state-based entitlements, depending on whether the employee is covered by the NSW long service leave scheme and their circumstances.

Because redundancy often interacts with long service leave, final pay, notice, and sometimes sick leave, it’s worth approaching voluntary redundancy as a package - not a single payment item.

When Does Voluntary Redundancy Make Sense For Small Businesses?

Voluntary redundancy isn’t right for every business or every restructure. It tends to work best when you have:

• multiple similar roles where you can reduce headcount without needing to keep a specific person in the seat
• a clear business need to reduce roles (e.g. cutting a team from 6 to 4)
• enough time to consult and run an expression of interest process
• budget capacity to fund redundancy payouts (and possibly an incentive)

It can be less suitable where you need to keep specific capability (for example, only one person holds a licence, client relationship, or technical knowledge), or where you’re trying to address performance issues (which should be handled through performance management instead).

Do You Have To Accept Every Volunteer?

No. Even in a voluntary redundancy process in NSW, you can usually reserve the right to accept or decline expressions of interest.

This is important because you might receive volunteers who are critical to operations, or you might not receive enough volunteers to achieve your restructure goals.

That said, declining a volunteer can create employee relations issues. The way you communicate and document your reasons matters.

Is It Really “Voluntary”? The Legal Principles You Need To Get Right

Voluntary redundancy can feel informal (especially in small businesses where everyone knows each other). But legally, redundancy decisions sit inside a fairly structured compliance framework.

Here are the key principles you should keep front of mind.

1. You Still Need A Genuine Redundancy Basis

Even where an employee volunteers, you should still be able to show:

• your business no longer requires that job to be performed by anyone, or you require fewer employees to perform that work
• you complied with any consultation obligations (under an award, enterprise agreement, and/or your own policies)
• you considered redeployment options if applicable

In other words, “they offered to go” doesn’t automatically make it legally safe if the underlying redundancy isn’t genuine.

2. Consultation May Be Mandatory

Many modern awards and enterprise agreements require you to consult with employees (and sometimes their representatives) when you’re making major workplace changes that can lead to redundancies.

Consultation is not just telling employees a decision has already been made. It usually involves:

• informing employees about the proposed changes
• discussing the likely effects
• considering reasonable measures to avert or minimise adverse impacts

Even if you’re inviting volunteers, you may still need to consult because the restructure itself is a “major change”.

3. Be Careful With Pressure Or “Targeting”

Voluntary redundancy can become risky if employees feel pressured or singled out.

Some examples of what to avoid:

• threatening termination if they don’t volunteer
• repeatedly pushing one employee to take the offer
• presenting the offer as “take it or you’ll be managed out”

If you’re concerned about whether your approach could be seen as forced, it’s worth getting advice early (particularly before you put anything in writing).

4. Notice Still Applies (Unless You Pay It Out)

In many cases, redundancies require notice of termination or payment in lieu of notice, depending on the arrangement and the employee’s entitlements.

If you plan to pay notice out rather than have the employee work it, you’ll want to document it clearly and calculate it correctly. This is where payment in lieu of notice becomes relevant, especially when you’re coordinating end dates across multiple volunteers.

How To Run A Voluntary Redundancy Process In NSW (Step-By-Step)

A good voluntary redundancy process in NSW is structured, consistent, and well documented - without being overly complicated.

Below is a practical step-by-step approach many small businesses use.

1. Define The Business Case And The “Redundancy Pool”

Start with clarity on what’s changing and what your end state is.

• Which roles are no longer needed (or needed in reduced numbers)?
• How many positions do you need to remove?
• Which teams, locations, or functions are affected?
• Are there redeployment options inside the business?

This step helps ensure your redundancy remains “genuine” and not person-specific.

2. Check The Legal Settings (Award, Agreement, Contract, Policies)

Before you make an offer, check what instruments apply to your employees, because they can change:

• consultation obligations
• minimum notice requirements
• redundancy pay entitlements (including exclusions)
• any requirements around selection and redeployment

If you’re not sure what should apply, it’s often worth reviewing your current Employment Contract approach and workplace documentation before starting a restructure.

3. Prepare Your Voluntary Redundancy Offer (And Keep It Clear)

Your offer should be in writing and explain, in plain English:

• who is eligible to express interest
• the timeline to respond
• what redundancy package is on offer (and what it includes)
• whether you may accept or decline volunteers at your discretion
• the proposed termination date range
• next steps if the offer is accepted

Be careful with wording. You don’t want the offer to accidentally read like a resignation request, or like you’ve already selected people for termination.

4. Consult (If Required) And Answer Questions

If consultation obligations apply, do this early. Even when not strictly required, it’s still good practice to meet with affected employees and explain:

• why the restructure is happening
• what the voluntary process is trying to achieve
• how you’ll handle confidentiality and fairness

This is also where having clear Workplace Policy documents and a consistent communication approach can reduce misunderstandings.

5. Assess Expressions Of Interest And Confirm Decisions In Writing

Once you receive volunteers, decide who you will accept (and confirm outcomes in writing).

If you decline a volunteer, you should still communicate respectfully and consistently. You don’t necessarily need to provide detailed reasons, but you should avoid vague or personal explanations that could be misunderstood.

6. Document The Exit Properly

When you accept a voluntary redundancy, you’ll usually want to document:

• the end date
• notice arrangements (working notice vs paid out)
• the breakdown of payments
• return of company property
• confidentiality and post-employment obligations (where relevant)

In many cases, businesses also choose to use a settlement-style document for extra certainty, particularly where an incentive is being paid.

How To Calculate A Voluntary Redundancy Package (And What Usually Needs To Be Paid)

Calculations are often where small businesses get caught out - especially if you’re doing multiple redundancies at once.

A voluntary redundancy package commonly includes the following components (depending on eligibility):

• Redundancy pay (based on length of service under the National Employment Standards, and potentially varied by award or enterprise agreement)
• Notice of termination (or payment in lieu)
• Accrued annual leave (paid out on termination)
• Long service leave (may be payable depending on service and NSW rules)
• Any agreed incentive / ex-gratia amount (if you’re offering extra to encourage volunteers)

To sense-check redundancy pay figures, a redundancy calculator can be a useful starting point - but you should still confirm the employee’s instrument coverage (award/agreement), service dates, and whether any exclusions apply.

What About Small Business Redundancy Exemptions?

Some businesses may be exempt from paying redundancy pay under the National Employment Standards (NES) if they are a “small business employer” (generally fewer than 15 employees, calculated in a specific way). In most cases, a modern award can’t require redundancy pay where the NES exemption applies - although other instruments (like an enterprise agreement or employment contract) may provide more generous redundancy terms.

Even where redundancy pay isn’t payable due to the small business exemption, this doesn’t mean there are no obligations:

• notice (or payment in lieu) can still apply
• annual leave still needs to be paid out
• consultation obligations may still apply under an award or enterprise agreement
• you still need a genuine redundancy basis and a fair process

Because the headcount calculation and instrument terms can be technical, this is a common point where employers seek advice before finalising the offer.

Does Voluntary Redundancy Affect Final Pay Timing?

Final pay timing can be governed by awards, agreements, or contracts, and it’s a frequent source of complaints.

As a general best practice, you should aim to:

• provide a written breakdown of final payments
• confirm when final pay will be processed
• check the payroll, tax and superannuation treatment for each component (not every payment is treated the same way), and consider getting accounting advice where needed - especially for incentives/ex-gratia payments

Common Risks With Voluntary Redundancy (And How To Avoid Them)

Voluntary redundancy can reduce disputes, but it’s not “risk-free”. These are the common issues we see small businesses run into when trying to implement a voluntary redundancy process in NSW.

1. The Role Isn’t Actually Redundant

If you accept a volunteer and then replace them (or hire someone into a substantially similar role shortly after), you can undermine the “genuine redundancy” position.

If your business genuinely needs the work done but wants to reorganise duties, it may be better to consider a restructure with redeployment - not redundancy.

2. Inconsistent Offers Across The Team

If some employees are offered incentives, different terms, or different deadlines without a clear rationale, it can create:

• resentment and morale issues
• allegations of unfairness or discrimination
• confusion about what has been agreed

If you do offer different packages (sometimes it makes sense), document why and keep communication consistent.

3. Poor Documentation And “Handshake Deals”

In small businesses, it’s tempting to agree to an exit informally. The risk is that later you have different understandings about:

• what was included in the payout
• when employment ended
• whether notice was paid
• whether there were any conditions (like returning equipment)

Clear letters and properly drafted documents protect both sides.

4. Confusion Between Redundancy And Other Termination Pathways

Sometimes voluntary redundancy is used when the real issue is performance, misconduct, or a breakdown in the employment relationship.

That’s where businesses can mix up redundancy with other pathways like termination more broadly. If you want to sanity-check the difference between termination categories, it can help to understand redundancy vs termination so you choose the right process for the situation.

5. Getting Notice Wrong

Minimum notice periods can depend on service length, age, awards, and contracts.

If you’re planning redundancies, it’s also useful to be familiar with the rules around termination notice (including the Fair Work framework). Many employers start by reviewing the basics of notice under the Fair Work Act and then apply any award/contract overlays.

Key Takeaways

• Voluntary redundancy can be a practical, lower-conflict way to restructure, but you still need a genuine redundancy basis and a compliant process.
• In NSW, most redundancy rules come from the Fair Work system, but long service leave and final pay issues can add complexity.
• A clear written offer (eligibility, timeline, package breakdown, and your discretion to accept/decline) is essential to avoid misunderstandings.
• Consultation obligations may apply through awards or enterprise agreements - even if you’re inviting volunteers.
• Redundancy packages often include redundancy pay (if applicable), notice (or payment in lieu), and payouts of accrued leave, plus any incentive you offer.
• The biggest risks come from roles not being truly redundant, inconsistent treatment across staff, and poor documentation.

If you’d like help structuring a voluntary redundancy process in NSW or preparing redundancy documents, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.