Redundancy pay in Australia, what employers must pay, who's exempt, and the process

If you are restructuring, closing a site or automating a role, redundancy pay is usually part of the cost. Under the National Employment Standards (the NES) in the Fair Work Act 2009 (Cth), eligible employees whose jobs are genuinely no longer required are entitled to a payment calculated from their years of service, on top of notice and any accrued leave. Getting this wrong is expensive. The Fair Work Ombudsman can investigate and take employers to court, and a termination that is not a genuine redundancy can be challenged as an unfair dismissal.

This guide sets out the obligation in plain terms: when it arises, which employers and employees are in scope, how much you must pay, the consultation and redeployment duties that sit around the payment, and what happens if you get the process wrong.

When the duty to pay redundancy pay arises

Severance pay is the everyday name for NES redundancy pay. The trigger is set out in s 119 of the Fair Work Act 2009 (Cth): the employee's employment is terminated at the employer's initiative because the employer no longer requires the job done by the employee to be done by anyone, unless that is due to the ordinary and customary turnover of labour. Redundancy pay is also triggered where employment ends because of the employer's insolvency or bankruptcy.

A redundancy in this sense is about the job, not the person. If you are removing a role because of a restructure, a drop in demand, new technology or a closure, and no one will perform that work afterwards, the trigger is met. If the real reason is the employee's performance or conduct, that is not a redundancy, and paying severance will not make it one. A dismissal driven by the person rather than the role falls outside the genuine redundancy rules and is usually treated as an ordinary termination, with the usual unfair dismissal and general protections exposure.

Who is in scope: the thresholds and exemptions

Before you calculate anything, check whether the obligation applies at all. The key thresholds are:

• Twelve months of service: an employee has no NES redundancy pay entitlement unless they have completed at least 12 months of continuous service, and periods worked as a casual do not count towards that service (s 121, s 119(3)).
• Small business employers: an employer with fewer than 15 employees is exempt from the redundancy pay component (s 121(1)). For the headcount, s 23 requires you to count the employee being terminated and any employees being terminated at the same time, to include casuals who work on a regular and systematic basis, and to treat associated entities as one employer. A business that assumes it is under the threshold can be in for an expensive surprise.
• Casual employees: casuals are not entitled to NES redundancy pay, and casual periods do not count as continuous service for this entitlement (s 123, s 119(3)).
• Fixed-term and specified-task employees: the NES redundancy rules do not apply to employees engaged for a specified period of time, a specified task or a specified season, unless a substantial reason for that engagement was to avoid the rules (s 123).
• Serious misconduct and trainees: the rules do not apply where employment is terminated for serious misconduct, or to most trainees whose employment is tied to a training arrangement (s 123).
• Transfers of business: where an employee's employment transfers to a new employer, service can carry over, and redundancy pay may not be payable in relation to the termination with the first employer, or may be affected if the employee refuses acceptable alternative employment (s 122).

These exemptions remove the payment obligation, not the need for a fair process. Even where no redundancy pay is owed, you still need to manage notice, accrued entitlements and the risk of an unfair dismissal claim.

How much redundancy pay you must pay

The amount is fixed by the table in s 119(2), which converts continuous service into weeks of pay:

Note the quirk in the last band: an employee with 10 or more years of service is entitled to 12 weeks, which is less than the 16 weeks payable at 9 to 10 years. Payroll systems and templates frequently get this wrong.

Each week is paid at the employee's base rate of pay for their ordinary hours of work (s 119(2)). Broadly, that is the usual hourly rate for ordinary hours, not overtime, penalty rates, bonuses or allowances. Continuous service for this purpose does not include periods worked as a casual (s 119(3)).

A worked example: a full-time employee with eight years of continuous service and a base rate of $1,200 per week is entitled to 14 weeks' redundancy pay, or $16,800, before tax. That amount is payable on top of notice and any accrued leave.

Redundancy pay is additional to notice. The NES notice entitlement, or payment in lieu of notice, is a separate obligation, and your modern award, enterprise agreement or employment contract may add to it. Where the employer obtains other acceptable employment for the employee, or genuinely cannot pay, the Fair Work Commission can reduce the amount on application (s 120).

Consultation: the duty that makes a redundancy genuine

A dismissal is only a genuine redundancy if the employer has complied with any obligation in a modern award or enterprise agreement to consult about the redundancy (s 389(1)). Most modern awards contain a consultation clause, and many enterprise agreements add detail.

The practical standard is to inform affected employees about the proposed changes and why they are proposed, invite their views, and genuinely consider what they say before making a final decision. This needs to happen before the decision is locked in, not after a termination letter is drafted. The consultation obligation is often the first thing the Fair Work Commission examines in an unfair dismissal claim, and it is the step employers skip most often when a restructure is moving quickly.

Redeployment: look before you terminate

A dismissal is not a genuine redundancy if it would have been reasonable in all the circumstances to redeploy the employee within your enterprise or the enterprise of an associated entity (s 389(2)).

This is a real search, not a box to tick. Consider roles across the whole business and any associated entities, matched against the employee's skills, qualifications and experience, and keep a written record of what was considered and why each option was unsuitable. Where acceptable alternative employment is found, the Fair Work Commission can also reduce the redundancy pay that would otherwise be payable (s 120). The redeployment analysis you do now is the evidence you will rely on if the dismissal is challenged later.

Paying the full final amount

Final pay usually has four parts: redundancy pay, notice or payment in lieu, accrued entitlements such as unused annual leave, and any amounts owed under the contract such as crystallised bonuses or commissions. Work through each component separately and show the breakdown on the payslip so the employee can see how the total was reached. Pay promptly, because award, agreement or contractual timing rules can apply.

Tax treatment differs by component, and getting it wrong creates a withholding problem. A genuine redundancy payment is tax-free up to a limit that is indexed each year: for the 2026-27 income year the limit is $13,598 plus $6,801 for each complete year of service, per the Australian Taxation Office. Amounts above the tax-free limit are taxed concessionally as an employment termination payment up to the ETP cap of $270,000 for 2026-27, with the excess taxed at the top marginal rate. The ATO explains the conditions for a genuine redundancy payment, which generally requires the job to be abolished, the dismissal to be at the employer's initiative, and the employee to be under age pension age (ATO guidance).

Superannuation is a separate question. Redundancy pay is generally not ordinary time earnings, so it usually does not attract the super guarantee, whereas other components, such as annual leave paid out on termination, may. The ATO's list of payments that are ordinary time earnings and a payroll adviser can confirm the treatment of each component before you run the final pay run (ATO guidance).

What happens if you get it wrong

The exposure is not limited to the unpaid amount. The main risks are:

• Unfair dismissal: if the consultation obligation was not met, or reasonable redeployment was available, the dismissal is not a genuine redundancy and an eligible employee can claim unfair dismissal. The Fair Work Commission can order reinstatement or compensation, capped by statute at the lesser of six months' pay and half the high income threshold.
• General protections: an employee can allege the termination was for a prohibited reason, for example because they exercised a workplace right. These claims carry their own remedies and reversal of the usual onus of proof in some cases.
• Fair Work Ombudsman enforcement: the NES obligations in s 44 are civil remedy provisions. The Ombudsman can investigate, issue compliance notices and take court proceedings seeking civil penalties and orders to back-pay unpaid redundancy pay and other entitlements.

A compliance checklist for a redundancy

Work through these steps in order before the decision is finalised:

• Confirm headcount and service first: is the small business exemption available, counting regular and systematic casuals and associated entities (s 23)?
• Read the consultation clause in the applicable modern award or enterprise agreement and plan around it.
• Document the business case: which roles are affected, why, and the timeline.
• Consult with affected employees in writing, invite feedback, and genuinely consider it.
• Search for redeployment across the business and any associated entities, and record the outcome.
• Confirm the role is genuinely redundant and the reason is not the employee's performance or conduct.
• Calculate redundancy pay from the s 119 table at the base rate for ordinary hours, then add notice, accrued leave and contractual amounts.
• Check the tax-free limit and super treatment of each component with payroll or an adviser.
• Pay on time and provide a payslip that breaks down every component.

When to get a lawyer involved

An employment lawyer can map the consultation obligations in your award or agreement, review whether the business case and redeployment search will survive scrutiny, and prepare the letters and calculation sheets before any decision is finalised. Legal input is most valuable at the planning stage, because the documents produced then are exactly what the Fair Work Commission will test if a dismissed employee lodges a claim.

The step that most often costs employers

Two things catch employers out. The threshold that surprises most is the small business headcount: casuals on a regular and systematic basis count, associated entities are aggregated, and the employee being made redundant is included, so a business can drop below 15 only after the count is done properly. The duty most often missed is documentation: the written consultation record and the redeployment search. If you cannot show on paper that the job was genuinely redundant and that redeployment was properly considered, the payment calculation becomes the least of your problems, because the dismissal itself can be found unfair. If you are planning redundancies this quarter, start the paper trail now: brief the business case, read your award's consultation clause, and map the redeployment options before you meet with anyone.