When Do Employers Have to Pay Redundancy Pay?

If you run a small business, redundancies can be one of the toughest calls you’ll make. Sometimes it’s driven by a downturn, a restructure, new technology, or simply the need to cut costs to keep the business afloat.

But once you’re considering a redundancy, one question usually comes up straight away: do you have to pay redundancy pay (and if so, when does redundancy pay have to be paid)?

This is where things can get confusing fast, because redundancy pay isn’t automatically owed in every situation. Whether you need to pay it (and how much) depends on the reason for the termination, how long the employee has been with you, your business size, and whether an award, enterprise agreement or employment contract applies.

Below, we’ll walk through redundancy pay in Australia from a small business perspective, including when it applies, key exemptions, timing, and practical steps to reduce risk and handle the process fairly.

What Is Redundancy Pay (And When Is It Triggered)?

In simple terms, redundancy happens when you no longer need a particular job to be done by anyone. It’s about the role disappearing, not the person “underperforming” or doing something wrong.

Redundancy pay (sometimes called redundancy entitlements) is a payment many employees are entitled to when their employment ends because their position is made redundant.

Under the Fair Work Act, redundancy pay is usually triggered when:

• you terminate an employee’s employment, and
• the termination is because you no longer require the person’s job to be performed by anyone (due to changes in the operational requirements of the business).

Common examples of operational changes that can lead to redundancy include:

• a drop in revenue and you need to reduce headcount
• your business closes, relocates, or changes trading hours
• you outsource a function (for example, bookkeeping, marketing, or IT)
• technology automates tasks (for example, POS changes reducing admin work)
• a restructure where multiple roles are merged into one

Be careful: calling something a “redundancy” does not make it one. If the real reason is performance, misconduct, or personality conflict, trying to package it as redundancy can expose you to claims (including unfair dismissal).

Genuine Redundancy Matters

In many disputes, the key question becomes whether the redundancy was a genuine redundancy. While every situation is different, genuine redundancy usually involves:

• a real operational reason for the role to no longer exist, and
• proper consultation (if required under an award or enterprise agreement), and
• consideration of reasonable redeployment options within your business or an associated entity.

Getting the groundwork right early can reduce legal risk later, especially where roles change rather than disappear entirely.

When Do You Have To Pay Redundancy Pay In Australia?

As a starting point, redundancy pay is generally payable when:

• the employee is covered by the national system (most private sector employers are),
• the employee is made redundant (because the job is no longer required), and
• none of the exceptions apply (we cover those below).

Redundancy pay is usually calculated based on the employee’s period of continuous service with you. The Fair Work Act provides a redundancy pay scale (in weeks of pay) that increases with service length, up to a cap.

In practice, you’ll also need to check:

• the employee’s employment contract (it might provide extra redundancy entitlements),
• any applicable modern award or enterprise agreement (these can include specific consultation obligations or additional requirements), and
• whether your business qualifies as a small business employer for redundancy purposes.

Because termination documents and calculations can become contentious, it’s worth having your employment paperwork in good order, including a clear Employment Contract for each team member.

How Much Redundancy Pay Is Typically Owed?

The amount depends on length of service. For example, employees with longer service generally receive more weeks of redundancy pay than employees with only a year or two of service.

Under the Fair Work Act, redundancy is generally calculated using the employee’s base rate of pay for their ordinary hours of work (not including things like overtime). The Fair Work scale also has maximums (including a maximum number of weeks payable) and other rules that can affect the final figure, so it’s important to calculate carefully and also check any award, enterprise agreement or contract terms that provide additional entitlements.

Redundancy pay is separate from (and in addition to) other termination-related payments such as:

• unused annual leave (which is commonly paid out on termination)
• payment in lieu of notice (if you don’t require the employee to work out their notice period)
• any other contractual entitlements (where applicable)

If you’re considering paying out notice rather than having the employee work it, it’s worth checking how payment in lieu of notice works in an Australian employment law context.

When Is Redundancy Pay Not Required? Key Exemptions For Small Businesses

This is where many small business owners get caught off guard. Redundancy pay is not payable in every redundancy situation.

Common situations where redundancy pay may not be required include:

1. You Are A Small Business Employer (Fewer Than 15 Employees)

Under the Fair Work Act, if you are a small business employer (generally fewer than 15 employees), you may be exempt from paying redundancy pay.

However, a few important cautions:

• The “fewer than 15 employees” threshold has specific counting rules (including certain long-term casuals).
• Even if redundancy pay isn’t owed, you still need to meet other termination obligations (like notice, final pay, and any award-based consultation obligations).
• An employment contract, award, or enterprise agreement could still create redundancy-related obligations, depending on how it’s drafted and what applies.

If you’re unsure whether you count as a small business employer, it’s worth getting advice before you proceed, because misclassifying this can be expensive.

2. The Employee Is A Casual (In Most Cases)

Casual employees are generally not entitled to redundancy pay under the Fair Work Act.

That said, make sure the employee is genuinely a casual and properly documented as such. Misclassification risk is real, particularly if the person has regular hours and behaves more like a permanent employee in practice.

3. The Employee Has Less Than 12 Months’ Service

Redundancy pay is generally not payable if the employee has been employed for less than 12 months.

Even if redundancy pay is not owed, you still need to consider notice of termination and other final pay components.

4. The Termination Is Not Actually A Redundancy

If you terminate someone for performance, conduct, or because you’re unhappy with them in the role, that is not redundancy. Redundancy pay may not apply, but you may be exposed to other types of claims if the process is mishandled.

From a risk perspective, it’s often better to clearly separate “performance management” issues from “operational restructure” decisions, rather than blending them together.

5. Alternative Employment Is Provided In Some Transfers Of Business

In some business sale or restructure scenarios, redundancy pay may not be owed if the employee is offered suitable alternative employment with the new employer and they accept it (and the terms are not significantly less favourable overall). Whether the exception applies can be technical and fact-specific, including what’s offered and what the employee does in response.

These scenarios can be technical, and the details matter. If you’re buying or selling a business and employees are being transferred, it’s a good time to get advice before you finalise headcount decisions.

When Does Redundancy Pay Have To Be Paid (And What Must Be Included In Final Pay)?

Even when redundancy pay is owed, employers often ask: when does redundancy pay have to be paid?

In most situations, redundancy pay is paid as part of the employee’s final pay. The due date for final pay (including any redundancy pay) can depend on the applicable award or enterprise agreement (some have specific timeframes), the employment contract, and your usual pay cycle and payroll arrangements.

Because timing issues can lead to disputes (or formal complaints), it’s smart to decide early how you’ll handle:

• the termination date (especially if you’re paying notice in lieu)
• the final payroll run (including calculations and approvals)
• payslip and recordkeeping

What Usually Goes Into Final Pay?

Final pay often includes a combination of:

• Outstanding wages up to the termination date
• Notice period pay (worked notice or paid in lieu)
• Redundancy pay (if owed)
• Unused annual leave payout (typically payable on termination)
• Other amounts required by an award, enterprise agreement, or contract (for example, some loadings or allowances)

If you’d like to sanity-check what may be involved in a redundancy outcome, a redundancy pay calculation can be a good starting point, and many business owners use a redundancy calculator to estimate figures before finalising their numbers.

Be mindful that “final pay” isn’t just about money. If you provide termination letters, separation certificates, or internal communications, those documents should be consistent with your legal position (and ideally reviewed before they go out).

How To Reduce Legal Risk When Making Someone Redundant

When you’re under financial or operational pressure, it’s tempting to move quickly. But redundancy is one area where taking a bit more time upfront can save you a lot of time (and cost) later.

Here are practical steps that help reduce risk for small businesses.

Step 1: Confirm It’s A Role-Based Decision (Not A Person-Based Decision)

Document the business reasons for the restructure. For example:

• What changed operationally?
• Why is the job no longer required?
• When did the change occur and what data supports it (sales drop, loss of client contract, etc.)?

This kind of documentation is useful if your decision is later questioned.

Step 2: Check Award / Enterprise Agreement Consultation Requirements

Many modern awards and enterprise agreements include consultation obligations when you make major workplace changes, including redundancies.

Consultation can include:

• telling affected employees about the proposed changes
• giving them an opportunity to respond
• considering measures to avert or mitigate adverse impacts

Skipping consultation where it’s required is a common reason redundancies get challenged as not “genuine”.

Step 3: Consider Redeployment Options

Before finalising a redundancy, think about whether the employee could be reasonably redeployed into another role within your business (or an associated entity).

This doesn’t mean you must create a role out of thin air. But if there is a suitable vacancy (or a role that could be reasonably offered), not considering it can increase risk.

Step 4: Get Your Paperwork Right

A well-structured redundancy process typically involves:

• a consultation meeting (where required)
• a clear written termination letter explaining the redundancy
• a correctly calculated final pay breakdown
• updated employee records and payroll documentation

If you don’t have up-to-date employment documentation across the business, redundancies are often the moment issues surface (for example, unclear notice clauses or inconsistent role descriptions). Having a strong Staff Handbook can help set consistent expectations about workplace processes and communication.

Step 5: Be Careful With Comms (Internal And External)

Redundancy can affect morale, remaining team members, and even clients.

Keep messaging consistent and respectful. Avoid language that suggests the employee is being let go due to fault (unless it genuinely is a performance/conduct termination and you’re following that pathway).

What Other Legal Issues Often Come Up Alongside Redundancy Pay?

In small businesses, redundancies rarely happen in isolation. They often overlap with other legal and commercial issues.

Notice Periods And Ending Employment

Even if redundancy pay is not owed (for example, because you are a small business employer), you may still need to provide notice or pay in lieu of notice.

Reducing Hours Versus Redundancy

Some employers try to avoid redundancy by reducing hours. Depending on the employee’s contract and any applicable award, reducing hours unilaterally can create legal risk.

If you’re considering changing working hours or moving roles to part-time, you’ll want to handle it carefully and, in many cases, by agreement.

Deeds Of Release Or Settlement

In higher-risk situations (for example, where there’s a potential dispute about whether it’s a genuine redundancy), some employers consider a deed of release or settlement arrangement.

This needs to be handled carefully so it’s enforceable and doesn’t create further issues. If you’re heading down that path, it’s usually best to get legal advice.

Key Takeaways

• Redundancy pay is generally owed when an employee’s role is genuinely no longer required due to operational changes in your business.
• Redundancy pay is not always payable, including where you are a small business employer (fewer than 15 employees), the employee is casual, or the employee has less than 12 months’ service.
• If redundancy pay is owed, it is usually paid as part of final pay, along with other termination payments like unused annual leave and potentially notice (or payment in lieu).
• A “genuine redundancy” generally involves a real role-based business reason, meeting consultation obligations (if applicable), and considering redeployment options.
• Having clear documentation (contracts, policies, letters, and payroll calculations) helps reduce disputes and protects your business if the termination is challenged.

If you’d like help working through redundancy pay obligations or preparing redundancy documents for your business, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.