Redundancy pay is the compensation an employer must sometimes pay when a job genuinely disappears. The idea behind it is straightforward: an employee who has built up years of service with a business should not walk away empty-handed when the role itself ceases to exist, whether because of a restructure, new technology, a downturn, or a merger. In Australia, the baseline entitlement comes from the National Employment Standards (NES) in the Fair Work Act 2009 (Cth), and awards and enterprise agreements can add to it.
This article walks through how the scheme actually operates: what triggers the payment, who is entitled and how the amount is worked out, who is left out, what else must be paid at the same time, and the obligations that sit around the payment itself. It matters most when a business is about to restructure, because the decisions made in the weeks before an announcement determine both the size of the payout and the risk of an unfair dismissal claim.
Who is involved when a role is made redundant
A redundancy is not just a conversation between an employer and one employee. Several parties have a role:
- The employer: decides the role is no longer needed, must consult where an award or agreement requires it, must consider redeployment, and must calculate and pay the entitlements.
- The employee: is entitled to notice or payment in lieu, redundancy pay where eligible, and payment of accrued leave.
- The Fair Work Commission: hears unfair dismissal applications and can, on application by the employer, reduce NES redundancy pay in limited circumstances.
- The Fair Work Ombudsman: publishes guidance, investigates breaches and can take enforcement action.
- Services Australia: must be notified when 15 or more employees are being made redundant, and administers the Fair Entitlements Guarantee when an employer is insolvent.
- The Australian Taxation Office: sets how each component of a termination payout is taxed.
When redundancy pay is triggered
Under s 119 of the Fair Work Act 2009 (Cth), an employee is entitled to redundancy pay if their employment is terminated at the employer's initiative because the employer no longer requires the job to be done by anyone, or because of the employer's insolvency or bankruptcy. The first limb captures the everyday restructure: the duties cease, are absorbed by existing staff, or are replaced by a machine or system.
The exception is worth noting. No payment is owed where the termination is due to the ordinary and customary turnover of labour, which is the Fair Work Ombudsman's description of the normal ebb and flow of work rather than a genuine restructure.
The "genuine redundancy" test
Whether the payment is triggered at all, and whether the dismissal can be challenged, turns on the meaning of genuine redundancy in s 389 of the Fair Work Act 2009 (Cth). A dismissal is a genuine redundancy only if:
- the employer no longer requires the person's job to be performed by anyone, because of changes in the operational requirements of the enterprise;
- the employer has complied with any obligation in the applicable modern award or enterprise agreement to consult about the redundancy; and
- it would not have been reasonable in all the circumstances to redeploy the person within the employer's enterprise or the enterprise of an associated entity.
If any limb fails, the dismissal is not a genuine redundancy, and the employee may be able to apply to the Fair Work Commission for unfair dismissal. This is why the business case, the consultation record and the redeployment analysis matter: they are the evidence that a redundancy was genuine.
Who gets paid, and how the amount is calculated
Eligibility under the NES requires three things: at least 12 months of continuous service, an employer that is not a small business employer, and employment that is not in one of the excluded categories discussed below.
The payment is the number of weeks set out in the NES scale, multiplied by the employee's base rate of pay for their ordinary hours. The scale in s 119(2) is:
| Period of continuous service | Redundancy pay |
|---|---|
| At least 1 year but less than 2 years | 4 weeks |
| At least 2 years but less than 3 years | 6 weeks |
| At least 3 years but less than 4 years | 7 weeks |
| At least 4 years but less than 5 years | 8 weeks |
| At least 5 years but less than 6 years | 10 weeks |
| At least 6 years but less than 7 years | 11 weeks |
| At least 7 years but less than 8 years | 13 weeks |
| At least 8 years but less than 9 years | 14 weeks |
| At least 9 years but less than 10 years | 16 weeks |
| At least 10 years | 12 weeks |
The drop at 10 years is deliberate and often surprises people. Service of 10 years or more produces 12 weeks, less than the 16 weeks someone with nine years receives.
Base rate of pay
The multiplier is applied to the base rate of pay, defined in s 16 of the Fair Work Act 2009 (Cth) as the rate payable for ordinary hours, excluding incentive-based payments and bonuses, loadings, monetary allowances, overtime or penalty rates, and any other separately identifiable amounts. In practice this means weekend penalties, shift loadings, commission and discretionary bonuses are left out of the redundancy calculation, though they may still be owed as outstanding wages.
Continuous service
Continuous service is the length of time the employee has worked for the employer, calculated under s 22 of the Fair Work Act 2009 (Cth). Periods of unauthorised absence and most unpaid leave do not count towards service, but they do not break it either. Unpaid parental leave, for example, does not reset the clock. Transfers of employment within a corporate group can also preserve service, and special rules in s 122 deal with transfer situations when a business changes hands.
A worked example: an employee with four years and three months of continuous service and a weekly base rate of $1,200 is entitled to eight weeks of redundancy pay, or $9,600, before tax.
Who is left out of NES redundancy pay
Several categories of employee do not receive redundancy pay under the NES, set out in s 121 of the Fair Work Act 2009 (Cth) and the Fair Work Ombudsman's guidance on who does not get redundancy pay:
- Employees with less than 12 months of continuous service: Periods worked as a casual do not count towards this service.
- Employees of small business employers: A small business employer is one with fewer than 15 employees, counted at the time of termination. The count under s 23 of the Fair Work Act 2009 (Cth) includes the employee being made redundant, casuals employed on a regular and systematic basis, and all employees of associated entities, which are treated as one business. Employers who miscount by overlooking a regular casual or a related entity can find themselves liable.
- Casual employees, who are generally not entitled to redundancy pay under the NES.
- Employees engaged for a specified period, specified task or a season, whose employment ends as agreed.
- Trainees employed for the length of the training arrangement, and apprentices:
There are two important carve-outs. First, an award or enterprise agreement can provide more generous redundancy entitlements, including for small businesses in industries with specific redundancy schemes, such as building and construction or manufacturing. Second, since the Fair Work Legislation Amendment (Closing Loopholes No. 2) Act 2024, an employer that becomes a small business through insolvency-related downsizing on or after 15 December 2023 may still owe redundancy pay, so a struggling business cannot shed staff to fall below the 15-employee threshold and then escape the obligation.
What else goes into the final payout
Redundancy pay is one component of a final payout, not the whole of it. Notice, leave and other amounts are separate entitlements and are paid in addition.
Notice or payment in lieu
An employer cannot terminate employment without giving written notice of the termination day, or paying in lieu. The minimum notice periods in s 117 of the Fair Work Act 2009 (Cth) are one week for up to a year of service, two weeks for one to three years, three weeks for three to five years, and four weeks for more than five years, increased by one week for employees over 45 with at least two years of service. Payment in lieu must be at the full rate of pay for the hours the employee would have worked.
Accrued leave
Under s 90 of the Fair Work Act 2009 (Cth), any accrued but untaken annual leave must be paid out on termination at the base rate. Long service leave is dealt with state by state and territory by territory, so the treatment of pro-rata long service leave on redundancy depends on where the employee works and the applicable legislation.
Superannuation and tax
Redundancy pay itself generally does not attract superannuation guarantee because it is not ordinary time earnings, but other components can, and the treatment of each component should be checked against the ATO's current guidance before payroll runs. For tax, a genuine redundancy payment is an employment termination payment with concessional treatment: part of it is tax-free up to an amount indexed each year that increases with each completed year of service, and the balance above that is taxed at a capped rate rather than marginal rates. Since 1 July 2019 the concession applies where the employee has not reached pension age, following the Treasury Laws Amendment (2019 Measures No. 2) Act 2019. The indexed thresholds change each year, so the current figures should be confirmed with the ATO or an accountant.
If the employer cannot pay
Where the employer is insolvent, the Fair Entitlements Guarantee (FEG), administered by the Department of Employment and Workplace Relations, is a safety net for eligible employees. FEG can cover unpaid wages of up to 13 weeks, annual leave, long service leave, payment in lieu of notice capped at five weeks, and redundancy pay capped at four weeks per full year of service. It does not cover unpaid superannuation.
The obligations that sit around the payment
Redundancy pay is only part of the legal picture. The process around it carries its own obligations, and getting these wrong is what converts a clean restructure into a dispute.
Consultation. Modern awards and enterprise agreements contain consultation terms. As the Fair Work Ombudsman explains, once an employer has decided on major changes likely to have significant effects, it must notify affected employees, provide clear information about the changes and their expected effects, discuss measures to reduce the adverse effects, and genuinely consider feedback. Failing to consult is not just poor practice: it destroys the genuine redundancy defence under s 389.
Redeployment. Before confirming a dismissal, the employer must work out whether redeployment within the business or an associated entity is reasonable in all the circumstances. That includes considering retraining and changes to the role. Keeping a record of the roles considered, the employee's suitability and the reasons each option was not reasonable is the practical way to defend the decision later.
Notification of large-scale dismissals. A business considering making 15 or more employees redundant must give Services Australia written notice of the proposed dismissals before they occur, including the reason, the number and categories of affected employees, and the timing.
Variation by the Fair Work Commission. Where the NES is the source of the entitlement, an employer can apply to the Fair Work Commission under s 120 to reduce redundancy pay, including to nil, if it has obtained other acceptable employment for the employee or genuinely cannot pay. This route is not available for entitlements that come from an award or enterprise agreement.
Where the process commonly goes wrong
The most frequent mistakes are factual, not legal. Employers describe a dismissal as a redundancy while advertising a near-identical role, which immediately fails the "no longer required by anyone" test. They skip consultation because the decision feels inevitable, not realising the obligation is triggered by the decision to make major changes. They count staff wrongly when working out whether they are a small business employer. They try to offset redundancy pay against notice or above-award wages, when the entitlements are separate. And they pay employees with less than a year of service without checking whether an award or agreement provides otherwise.
Each of these errors has a common cause: the genuineness of the redundancy, and the payment that follows, are determined by what was done and documented before the employee was told.
When a lawyer is worth it
A workplace lawyer adds the most value before anything is announced. A short engagement to review the business case, check the applicable award or agreement, map consultation and redeployment obligations, and draft the termination documents can prevent an unfair dismissal application and an underpayment claim, either of which will cost more than the advice. Complex situations justify advice sooner rather than later: service that spans a transfer of business, redeployment options across a group, overlapping awards, employees on leave during the restructure, or any question about whether the role will really disappear.
The decision that decides the whole payout
Everything in this scheme hangs on one characterisation: whether the redundancy is genuine. It determines whether redundancy pay is owed, whether the dismissal can be challenged as unfair, and how the payment is taxed. Genuineness is not something a business asserts at the end; it is built from the business case, the consultation record and the redeployment analysis made before the employee is told. Businesses that invest in that groundwork early, and take advice when the facts are unusual, tend to pay what is owed once, on time, and without a Commission application following. That is the outcome worth planning for.