Redundancy Pay in NSW, what Employers Must Pay and Do

When you make a role redundant in NSW, the rules that decide what you must pay are not primarily NSW rules at all. NSW referred its workplace relations powers to the Commonwealth from 2010, so most private-sector employers and employees in this state sit in the national system under the Fair Work Act 2009 (Cth), and the baseline redundancy entitlement comes from the National Employment Standards (NES) in that Act (s 119).

This article sets out the obligations that attach when you end someone's employment because their job is no longer required. You need to know when redundancy pay is owed and how to calculate it, which exemptions can remove the duty, what you still owe in notice and final pay, and the consultation and redeployment steps that keep a redundancy defensible. Getting the payment right matters, but so does getting the process right, because most disputes turn on process rather than arithmetic.

Three thresholds before redundancy pay is owed

The NES redundancy pay obligation does not apply to every NSW employer or every employee. Before you work out numbers, test three things:

• Continuous service of at least 12 months: under s 121 of the Fair Work Act, the obligation does not apply if the employee has less than 12 months of continuous service. Periods of casual employment do not count towards that 12 months. Unpaid leave does not count towards service either, although it does not break continuity, so a long period of unpaid parental leave extends the clock rather than restarting it (s 22).
• Not a small business employer: the NES redundancy pay obligation only applies to employers that are not small business employers at the time of the termination. A small business employer is an employer with fewer than 15 employees (s 23). The count is less obvious than it sounds:
  • all full-time and part-time employees count, including the employee being made redundant;
  • casual employees count only if they are employed on a regular and systematic basis;
  • employees of associated entities are counted together with your own staff, so a business with 10 employees and a related company with 8 is not small; and
  • the count is taken at the time of the termination, not averaged over a year.
• A genuine redundancy: redundancy pay is only owed where employment ends at the employer's initiative because the job is no longer required to be done by anyone, other than where the end of the work is due to the ordinary and customary turnover of labour (s 119(1)). If the real reason is performance or conduct, redundancy pay is not the mechanism, and labelling it redundancy will not protect you.

An award, enterprise agreement or employment contract can also create obligations that the NES does not, so each of these thresholds is a starting point rather than the whole answer.

Pay redundancy pay on the NES scale

Where the obligation applies, the amount is the employee's base rate of pay for their ordinary hours of work multiplied by the number of weeks set by the NES scale in s 119(2):

Two features of this table catch employers out. First, the scale caps at 16 weeks, and an employee with 10 or more years of service is entitled to 12 weeks, less than someone at 9 years. Second, the calculation uses the base rate of pay, which under s 16 excludes incentive-based payments and bonuses, loadings, monetary allowances, overtime and penalty rates, and other separately identifiable amounts. The Fair Work Ombudsman sets out the same scale and exclusions.

A worked example: a full-time employee with 4 years and 8 months of service and a base weekly pay of $1,400 falls in the 4 to 5 year bracket, so they are owed 8 weeks, or $11,200. That figure is the redundancy component only. Notice, payment in lieu of notice, and final pay such as unused annual leave are owed on top. For a part-time employee, the same number of weeks applies, but each week is worth the base rate for their ordinary rostered hours.

Check the exemptions before you promise or refuse a payment

Beyond the 12-month rule and the small business exemption, the Division of the Fair Work Act that creates redundancy pay does not apply to certain employees at all (s 123):

• casual employees;
• employees employed for a specified period of time, a specified task, or the duration of a specified season, though not where a substantial reason for that arrangement was to avoid the redundancy pay obligation;
• employees whose employment ends because of serious misconduct;
• apprentices, and trainees whose employment is limited to the training arrangement.

The Fair Work Ombudsman's guidance confirms the same categories. Two additional carve-outs matter in practice:

• The award or agreement can override the small business exemption: Most small businesses do not have to pay redundancy pay under the NES, but an award, enterprise agreement or contract may still require it. Awards with industry-specific redundancy schemes, including the Black Coal, Building and Construction, Joinery, Manufacturing, Plumbing and Timber awards, can apply different rules, and some apply to small businesses. This is the exemption that most commonly surprises employers who assumed the NES position was the whole picture.
• The insolvency downsizing exception: A business that falls below 15 employees as part of downsizing in a bankruptcy or liquidation may still owe NES redundancy pay to employees made redundant after the business shrank, where the redundancies that caused the downsizing occurred on or after 15 December 2023 (s 121(4)).

Give notice or payment in lieu

Notice of termination is separate from redundancy pay, and you owe it even where redundancy pay is exempt. Under s 117 the minimum notice period is:

The period increases by one week for an employee over 45 who has completed at least 2 years of continuous service. Notice must be given in writing and must specify the day of termination. You can instead pay out the notice period, but payment in lieu of notice must be made before or on the day of termination, and it must reflect what the employee would have earned across the full notice period, including loadings, allowances and penalty rates. Some daily hire arrangements in the building and construction and meat industries are carved out of the notice provisions entirely (s 123(3)).

Pay out final entitlements on time

Final pay is where errors concentrate, because redundancy pay tends to dominate the conversation. The Fair Work Ombudsman sets out the components:

• wages owing for hours worked up to the last day, including penalty rates and allowances;
• unused annual leave, paid at the same rate as if the leave had been taken, including annual leave loading where it would have applied during employment (s 90(2));
• payment in lieu of notice and redundancy pay, where owed; and
• any long service leave entitlement.

Long service leave is the main genuinely NSW-specific piece of a redundancy payout. It comes from the Long Service Leave Act 1955 (NSW), administered by NSW Industrial Relations, not from the Fair Work Act. Whether a pro-rata long service leave payment is owed on a redundancy depends on the employee's length of service and the circumstances of the termination, so it is worth confirming the position for each employee rather than assuming the payout is only annual leave.

Timing is a legal point, not a courtesy. Most awards require final pay within seven days of the last day of employment, and where an award or agreement does not set a rule, the Fair Work Act requires payment at least monthly. Payment in lieu of notice has the tighter deadline described above. Services Australia may also ask you to complete an Employment Separation Certificate when an employee stops working, which is worth having a standard process for.

Consult, consider redeployment and keep the redundancy genuine

Redundancy pay is only part of the obligation. Most modern awards include a consultation clause covering major workplace change, and complying with it is part of what makes a redundancy genuine. The Fair Work Ombudsman's best practice guide summarises the standard clause: notify affected employees and their representatives about the proposed change, discuss it with them as soon as possible, provide written information about the changes and their likely effects and any measures to reduce those effects, and give genuine consideration to the views raised. Consultation does not require the employees' consent, but it does require real engagement before the decision becomes a foregone conclusion.

Redeployment is the second limb that keeps a redundancy genuine. Under s 389, a dismissal is only a genuine redundancy if the job is no longer required due to changes in the operational requirements of the enterprise, the employer has complied with any award or agreement consultation obligations, and it would not have been reasonable to redeploy the employee within the employer's enterprise or an associated entity. A dismissal that is not a genuine redundancy can be challenged as unfair, because genuine redundancy is one of the elements the Fair Work Commission must be satisfied of before it can dismiss an unfair dismissal claim (s 385).

Two related rules are worth knowing. If you obtain other acceptable employment for the employee, or genuinely cannot pay the full amount, you can apply to the Fair Work Commission to have the redundancy pay reduced, although this only applies to NES entitlements, not award or agreement entitlements (s 120). And if you ask an employee to relocate, the employee may be entitled to redundancy pay where it was reasonable for them to refuse the move, per the Fair Work Ombudsman's guidance on workplace relocation.

An extra duty when 15 or more employees are dismissed

Where redundancies form part of a larger restructure, additional notification duties apply. An employer that decides to dismiss 15 or more employees for economic, technological, structural or similar reasons must give written notice to Centrelink before dismissing anyone (s 530). The employer must also notify and, in some cases, consult the relevant registered unions where employees are members and the employer could reasonably have known that (s 531). These are civil remedy provisions, so non-compliance can be taken to court.

What happens if you get it wrong

Underpaying redundancy pay, notice or final pay exposes you to enforcement. The redundancy pay and notice provisions are civil remedy provisions, which means the Fair Work Ombudsman, employees and unions can apply to the Federal Court, the Federal Circuit and Family Court, or an eligible state or territory court for orders (s 539). Courts can order the outstanding amounts to be paid plus pecuniary penalties of up to 60 penalty units for an individual and 300 for a body corporate for each contravention, rising to 600 and 3,000 penalty units respectively for serious contraventions where the breach was knowing or reckless (s 546, s 557A). The Fair Work Ombudsman can also investigate, issue compliance notices and accept enforceable undertakings rather than litigate.

Separately, a redundancy that is not genuine, or one where you skip consultation or redeployment, can become an unfair dismissal matter. If the Fair Work Commission finds the dismissal was harsh, unjust or unreasonable, it can order reinstatement or compensation capped at the lesser of 26 weeks' remuneration or half the high income threshold (s 392).

A compliance checklist for a NSW redundancy

Run through this checklist for every redundancy:

• Count your employees on the day of the termination, including associated entities, regular and systematic casuals, and the departing employee, and record that count in writing.
• Confirm the employee's award coverage, classification, and any redundancy, consultation, notice and final pay terms in the award, agreement or contract.
• Check continuous service dates, including unpaid leave and periods of casual service.
• Consult in accordance with the award or agreement, consider redeployment including in associated entities, and document the business rationale.
• Calculate redundancy pay on the NES scale using base rate of pay, then add notice or payment in lieu, unused annual leave and any long service leave.
• Give written notice of the termination day, and make payment in lieu of notice before or on that day.
• For 15 or more dismissals, notify Centrelink and relevant unions before dismissing anyone.
• Prepare a written breakdown of the final payment for the employee and keep records.

When you need a lawyer's help

A lawyer is usually worth engaging before the redundancy letters go out rather than after a dispute starts. A practitioner can confirm award coverage and the interaction between the NES and any industry-specific scheme, work out continuous service where there have been unpaid leave periods or a transfer of business, and advise on whether long service leave is payable under NSW law. They can also design and document a consultation and selection process, prepare the termination paperwork, apply to the Fair Work Commission where a reduction in redundancy pay is available, and respond if an unfair dismissal application lands.

The headcount that decides your obligation

The figure that most often decides whether NSW redundancy pay is owed is 15, and the way you count it is the trap. The employer with 14 employees that forgets the associated entity with 6 staff, or the regular casuals working consistent shifts, is not a small business at all, and the exemption they planned around never existed. The employer with 12 employees that assumes the NES position is the whole story can discover that the award covering their industry requires redundancy pay anyway. Before you promise an employee anything, run the count on the day you make the decision, check the award, and put both in writing. That single step, done before the conversation, is what stops a redundancy payout from becoming a redundancy dispute.