Making a role redundant is one of the harder decisions an employer makes. The human side is difficult enough, and the money side has a reputation for complexity that is only partly deserved. A redundancy payout is the payment an employee receives when their job disappears because the business no longer needs it done, and in most Victorian workplaces the rules come from a single source: the National Employment Standards (NES) in the Fair Work Act 2009 (Cth).
Because Victoria is a referring state, private sector employees here are national system employees covered by the federal Act, so there is no separate Victorian redundancy statute. The genuinely state-based part of the picture is long service leave, which has its own Victorian legislation. This guide sets out when the obligation to pay redundancy pay is triggered, how the amount is calculated, the exemptions that remove the obligation, what else belongs in the final payment, and where employers most often go wrong.
Who is involved when a redundancy happens
A redundancy payout is not something the employer simply decides. Several actors sit around the process:
- The employer: decides the role is redundant, consults where an award or agreement requires it, considers redeployment, and calculates and pays the entitlements.
- The employee: is owed notice or payment in lieu, accrued leave, and redundancy pay where it applies, and can challenge a dismissal they consider unfair.
- The Fair Work Commission (FWC): hears unfair dismissal applications, and is the body that can reduce redundancy pay where the employer has obtained other acceptable employment for the employee.
- The Fair Work Ombudsman (FWO): investigates and enforces NES entitlements, including redundancy pay, and can take employers to court for underpayment.
- State regulators: in Victoria, separate regulators police long service leave and the state's wage theft offences, which can both touch a badly handled redundancy.
The division of labour matters. The FWC decides whether a dismissal was fair, while the obligation to pay is an entitlement question that can be enforced by the employee or the FWO regardless of how the dismissal itself is judged.
What triggers the obligation to pay redundancy pay
Under s 119 of the Fair Work Act 2009 (Cth), an employee is entitled to redundancy pay when their employment is terminated at the employer's initiative because the employer no longer requires the job to be done by anyone, unless the termination is due to the ordinary and customary turnover of labour. Termination because of the employer's insolvency or bankruptcy also triggers the entitlement.
Two things follow from that definition. First, the trigger is about the job, not the person: if the business still needs the work done, just not by this employee, the termination is not a redundancy for payout purposes. Second, there are two different redundancy concepts in the federal scheme, and confusing them causes most of the errors in this area:
- Redundancy pay (s 119): an entitlement to money, payable in the circumstances above unless an exclusion applies.
- Genuine redundancy (s 389): a defence to an unfair dismissal claim. A dismissal is a case of genuine redundancy where the job is no longer required because of changes in the operational requirements of the business, consultation obligations were complied with, and it would not have been reasonable to redeploy the employee.
A redundancy can be completely genuine and still require full redundancy pay. The two concepts answer different questions, and the genuine redundancy defence does not reduce the payout.
When the NES does not require redundancy pay
The Act lists the situations where the obligation does not arise:
- Less than 12 months' service: employees with less than 12 months of continuous service have no NES redundancy entitlement under s 121. Periods of casual employment do not count towards that service, so a casual employee cannot build the qualifying service in the first place.
- Small business employers: a business with fewer than 15 employees is exempt from NES redundancy pay under ss 121 and 23. The count includes regular casuals, treats associated entities as one employer, and includes the employee being terminated. This is the exemption that most often applies to Victorian small businesses.
- Casual employees: the NES notice and redundancy pay provisions do not apply to casual employees at all (s 123).
- Fixed-term, task or seasonal arrangements: employees engaged for a specified period, task or season are excluded under s 123, although the exclusion falls away if a substantial reason for the arrangement was to avoid the redundancy provisions.
- Serious misconduct: dismissal for serious misconduct is not a redundancy and carries no redundancy pay.
- Apprentices and industry schemes: apprentices are excluded from the redundancy pay provisions, and some industries run their own redundancy schemes under modern awards or enterprise agreements that replace the NES scale.
Two cautions. First, being exempt from redundancy pay does not remove the rest of the final pay obligations: notice, annual leave and long service leave are still payable, and the employee can still bring an unfair dismissal claim. Second, awards, enterprise agreements and contracts can add to the NES, and occasionally replace it, so the default position is always to check the instrument before assuming the NES position applies.
How the redundancy pay amount is calculated
Where the entitlement exists, the amount is the employee's base rate of pay for their ordinary hours of work, multiplied by the number of weeks set out in the scale at s 119 of the Fair Work Act 2009 (Cth):
| 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 most common calculation error sits at the bottom of the table. After nine years of service the scale steps down, so an employee with ten or more years gets 12 weeks, not 16. The table reflects the NES as drafted, and it is easy to assume the scale keeps climbing. The step-down surprises almost everyone who hits it.
A week's pay means the base rate for ordinary hours
The multiplier is applied to the base rate of pay for ordinary hours, not the full rate an employee might earn with overtime, penalties or allowances. For a part-time employee it is the base rate for their ordinary hours, so the weekly figure is lower than a full-time comparison. If the award, agreement or contract defines ordinary hours differently, that definition governs. This is where variable-hours arrangements complicate the arithmetic, and where a payroll system set to annual salary divided by 52 will often overstate the entitlement.
A worked example
Take a full-time employee on a base rate of $1,250 a week with six years of continuous service. The scale gives 11 weeks, so the redundancy pay component is 11 times $1,250, or $13,750 before tax. On top of that, the employee receives notice or payment in lieu, payment for accrued annual leave and, once they pass the seven-year mark, an accruing long service leave entitlement under Victorian law.
What else belongs in the final payment
Redundancy pay is only one component of what the employee receives. The final payment also has to cover:
- Wages up to the termination date: including any allowances, overtime or commissions actually earned and payable under the award, agreement or contract.
- Notice of termination or payment in lieu: The NES minimum notice is 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 beyond five years, with an extra week for employees over 45 with at least two years' service (s 117). Payment in lieu is calculated at the full rate of pay for the hours the employee would have worked. Awards and agreements can add to these minimums, and notice payments have their own tax treatment, so it is worth confirming the payroll consequences before paying.
- Accrued annual leave: Untaken paid annual leave must be paid out when employment ends under s 90. This is a separate entitlement from redundancy pay and is often the largest single figure in the final payment.
- Long service leave under Victorian law: Under the Long Service Leave Act 2018 (Vic), an employee who has completed seven years of continuous employment is entitled to long service leave of 1/60th of their total service, and when employment ends the full accrued amount becomes due and payable. Employees with less than seven years' service generally have no payout, which surprises employers who assume it accrues like annual leave. Awards can preserve better pre-existing entitlements, so check before assuming the statutory minimum applies.
- Contractual and discretionary amounts: Enhanced severance clauses in senior contracts, ex gratia payments and bonuses can all form part of the package, but only if the contract or scheme actually provides for them on termination. If you are paying more than the legal minimum, document what is being paid and why, so it is clear the payment is not an admission of an entitlement.
Where employers get tripped up
The entitlements above are mechanical once verified, but the process around them is where disputes start:
- Skipping award consultation: Most modern awards require consultation about major workplace change, including redundancy. Failing to comply does not just invite a penalty; under s 389 it can destroy the genuine redundancy defence to an unfair dismissal claim, even where the redundancy pay itself was correct.
- Ignoring redeployment: Genuine redundancy requires that it would not have been reasonable to redeploy the employee within the business or an associated entity (s 389). You do not have to invent a role, but you should be able to show you looked at vacancies the employee could reasonably fill, with training where that is reasonable.
- Treating acceptable alternative employment as an automatic deduction: Where the employer obtains other acceptable employment for the employee, the redundancy pay can be reduced, but only by an FWC determination made on the employer's application under s 120. The FWC decides whether a reduction is appropriate and by how much. An employer who simply deducts a saving from the payout is underpaying.
- Assuming small business status: The 15-employee threshold is easy to misjudge. Regular casuals count, associated entities are aggregated, and the employee being terminated counts. A business that thought it was exempt can find itself liable for the full scale.
- Casual misclassification: Casuals are excluded from redundancy pay, but a person engaged as a casual who works regular hours over an extended period may in substance be a permanent employee. The classification, not the label, determines the entitlement.
- Paying late or paying short: Final pay should be processed promptly and in full. In Victoria, deliberately withholding wages or entitlements, including final pay, is a criminal offence under the Wage Theft Act 2020 (Vic), carrying penalties that include imprisonment for individuals. A genuine calculation error is not wage theft, but a pattern of short-paying redundancies is exactly the conduct the offence targets.
- The ten-year step-down: As noted above, the scale drops from 16 weeks to 12 weeks at ten years' service. If payroll assumes the scale keeps climbing, the overpayment is on you, not the employee.
When it pays to get advice
Most of the risk in a redundancy sits in the narrow window between deciding the role is redundant and announcing it. That is the point at which a lawyer earns their fee: confirming the employee's coverage and the applicable award or agreement, checking whether the small business exemption applies, working through the consultation and redeployment steps, and calculating the payout before a figure is put to the employee.
Once the announcement is made, the options narrow. An unfair dismissal application, a general protections claim or an FWO investigation all cost more than the advice that would have prevented them. If a dismissal has already happened, a lawyer can still help with the response: preparing the genuine redundancy case, making a s 120 application where acceptable alternative employment was obtained, and resolving long service leave or final pay disputes before they escalate.
Get the figure and the record right before you announce
The single most expensive mistake in this area is announcing a redundancy and a payout figure before the coverage and the scale have been checked. Once a number is in the termination letter, correcting it downwards is a dispute, and in Victoria the dispute can carry criminal consequences if it looks deliberate. The process record matters almost as much as the arithmetic: consultation notes, redeployment reasoning and a written calculation breakdown are what turn a genuine redundancy into a defensible one. A short review of the calculation and the process before the meeting costs a fraction of the claim it prevents, and it is usually faster than employers expect. A conversation about a redundancy before it is announced is often free and takes an hour; the claim it prevents takes months.