How to handle redundancy in Australia
Reviewed by Mellow Editorial Team, HR & payroll content team
Redundancy in Australia means an employer has genuinely decided they no longer need a job to be done by anyone, and the employee is entitled to notice, redundancy pay, and other entitlements set out in the Fair Work Act and the National Employment Standards. Getting the process right protects both the business and the employee.
What makes a redundancy "genuine"
Under the Fair Work Act, a redundancy is genuine when three conditions are met: the employer no longer requires the role, the employer has complied with any consultation obligations in the relevant Modern Award or enterprise agreement, and it was not reasonable to redeploy the employee elsewhere in the business or an associated entity.
If any of these conditions is not met, the dismissal may be challenged as an unfair dismissal — regardless of how the employer labels it. Small businesses with fewer than 15 employees are exempt from unfair dismissal claims in most circumstances, but they are not exempt from paying redundancy entitlements under the NES.
Consultation: the step most employers skip
Most Modern Awards and enterprise agreements require formal consultation before a redundancy decision is finalised. This means notifying affected employees of the proposed change, explaining the reasons, and giving them a genuine opportunity to suggest alternatives — before a final decision is made.
Consultation is not a box-ticking exercise after the decision has already been made. Skipping it, or running it as a formality, is one of the most common reasons redundancies are later found to be unfair or non-genuine.
Check the relevant Modern Award early in the process. If you are unsure which Award covers your employee, the Fair Work Commission's online tool is the starting point.
Calculating redundancy pay
The National Employment Standards set a minimum redundancy pay scale based on continuous service. Entitlements step up at:
- 1–2 years of service: 4 weeks' pay
- 2–3 years: 6 weeks
- 3–4 years: 7 weeks
- 4–5 years: 8 weeks
- 5–6 years: 10 weeks
- 6–7 years: 11 weeks
- 7–8 years: 13 weeks
- 8–9 years: 14 weeks
- 9–10 years: 16 weeks
- 10 years or more: 12 weeks (the scale drops here, because long-serving employees are typically entitled to long service leave)
"Weeks' pay" means the employee's base rate for their ordinary hours — not including overtime, penalties or allowances, unless the relevant instrument provides otherwise. An applicable Modern Award or enterprise agreement may set higher entitlements, and those take precedence.
Employees with less than 12 months of continuous service are not entitled to redundancy pay under the NES, though they remain entitled to notice. Small businesses (fewer than 15 employees) are also exempt from NES redundancy pay in most circumstances.
What else must be paid at termination
Redundancy pay is only part of the final payment. At termination you also need to pay:
- Notice — or payment in lieu, based on the employee's length of service and the applicable instrument
- Accrued annual leave — all unused annual leave must be paid out at the employee's ordinary rate; the NES guarantees 4 weeks' annual leave per year for full-time employees
- Accrued long service leave — state and territory legislation governs this; rules on when it is payable on termination vary by jurisdiction
- Outstanding wages and any other accrued entitlements
Superannuation must be paid on the ordinary time earnings components of the termination payment. As of 2026, the Superannuation Guarantee rate is 12%. Redundancy pay itself is generally not subject to the SG, but check with your payroll provider on the treatment of other components.
Tax treatment of redundancy payments
Genuine redundancy payments receive concessional tax treatment up to an ATO-determined tax-free threshold (indexed annually). The tax-free amount is calculated using a base amount plus an additional amount per year of service. Amounts above the tax-free limit are taxed as employment termination payments at a concessional rate up to certain caps, with the balance taxed at marginal rates.
Reporting happens through Single Touch Payroll. The final STP submission should reflect the termination date and all payment components correctly labelled, with finalisation completed by 14 July so the employee can lodge their tax return. If the employee has a HECS/HELP debt, withhold repayments on any amounts subject to the normal withholding scale.
Redeployment and the obligation to consider it
Before finalising a redundancy, genuinely assess whether the employee could be redeployed — into a different role, at the same or a different location, or within an associated entity. Document this assessment. If a suitable role exists and redeployment was not offered, the redundancy may not be considered genuine.
Redeployment does not have to be into an identical role, but it should be reasonable given the employee's skills, experience, and location. An employee can decline a redeployment offer, but that generally does not affect the employer's obligation to have made it.
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This article provides general information only and is not legal advice. For guidance specific to your situation, consult a qualified employment lawyer or the Fair Work Commission.
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