Redundancy Pay in Australia: A Small Business Owner's Complete Guide

Making an employee redundant is one of the most difficult decisions a small business owner faces. It is also one of the most legally complex. Get it wrong and you are exposed to unfair dismissal claims, unpaid entitlements liability, and potential Fair Work Ombudsman action.

This guide explains what Australian small businesses need to know about redundancy pay — including the often-misunderstood small business exemption.

What Is Redundancy?

A genuine redundancy occurs when:

1. The employee's job no longer exists
2. The employer no longer requires the job to be done by anyone
3. The employer has complied with any consultation requirements under an applicable modern award or enterprise agreement

All three elements matter. If you terminate an employee and then hire someone else to perform the same role, that is not a genuine redundancy — and the former employee can bring an unfair dismissal claim, regardless of what you called the termination.

Who Is Entitled to Redundancy Pay?

Redundancy pay is part of the National Employment Standards (NES) under the Fair Work Act 2009. It applies to employees whose employment is terminated because of genuine redundancy, where:

• The employee has completed at least one year of continuous service
• The employee is not covered by an exclusion

Exclusions from redundancy pay include:

• Casual employees
• Employees employed for a specified period, task, or season
• Employees of small businesses (fewer than 15 employees) — see the small business exemption below
• Apprentices

How Much Redundancy Pay Is Owed?

For businesses with 15 or more employees, redundancy pay is based on length of service:

| Years of Continuous Service | Redundancy Pay | | --------------------------- | -------------- | | 1 year but less than 2 | 4 weeks | | 2 years but less than 3 | 6 weeks | | 3 years but less than 4 | 7 weeks | | 4 years but less than 5 | 8 weeks | | 5 years but less than 6 | 10 weeks | | 6 years but less than 7 | 11 weeks | | 7 years but less than 8 | 13 weeks | | 8 years but less than 9 | 14 weeks | | 9 years but less than 10 | 16 weeks | | 10 years or more | 12 weeks |

Note that the entitlement drops slightly for employees with 10 or more years of service. This is because long-serving employees are typically entitled to a long service leave payment as well.

Redundancy pay is calculated on the employee's base rate of pay — not including overtime, allowances, or bonuses.

The Small Business Exemption

If your business has fewer than 15 employees at the time of the redundancy, you are not required to pay redundancy pay under the NES.

The count includes:

• All employees across the business (not just the location or team)
• Both permanent and regular casual employees
• Part-time employees count as one person regardless of hours worked

This exemption is significant for micro-businesses. However, be aware:

• You still owe notice pay (or payment in lieu of notice)
• You still must consult with employees if consultation is required under their award
• You are still exposed to unfair dismissal claims if the redundancy is not genuine or the process is defective

Also note: even if you meet the small business exemption today, if your headcount fluctuates near the 15-person mark, you should count employees at the time each redundancy decision is made — not at some earlier or later date.

Notice Periods for Redundancy

Regardless of whether redundancy pay applies, all employees (including those in small businesses) are entitled to minimum notice periods under the NES when their employment is terminated:

| Period of Continuous Service | Minimum Notice | | ----------------------------- | -------------- | | Less than 1 year | 1 week | | 1 year but less than 3 years | 2 weeks | | 3 years but less than 5 years | 3 weeks | | 5 years or more | 4 weeks |

Employees who are over 45 years of age and have completed at least 2 years of continuous service are entitled to an additional week of notice.

You can pay the employee in lieu of notice — that is, pay the notice period out rather than requiring the employee to work it. But the payment must equal what the employee would have earned during the notice period.

Consultation Obligations

Most modern awards include a consultation clause that requires employers to consult with employees about major workplace changes — including redundancies. This typically means:

• Notifying affected employees as soon as practicable after a definite decision has been made to make the role redundant
• Providing information in writing about the change and its expected effects
• Inviting employees to give their views and genuinely considering those views

Skipping consultation is a common mistake. Even if the redundancy itself is genuine, failing to consult as required under the applicable award can expose you to unfair dismissal or adverse action claims.

Redeployment Obligations

A redundancy is not genuine if it was reasonable in all the circumstances for the employee to be redeployed within the employer's enterprise or an associated entity — and the employer did not do so.

This means before finalising any redundancy, you must assess whether there are other roles within your business (or related businesses) that the employee could fill. If you skip this step and another position exists, the dismissal may be found not to be a genuine redundancy.

Interaction with Enterprise Agreements

If your employees are covered by an enterprise agreement, the redundancy provisions of that agreement apply instead of the NES minimums — but only if the agreement provides at least equivalent entitlements to the NES. If the agreement provides less than the NES minimum, the NES applies.

Always check your enterprise agreement before making redundancies.

What Happens If You Get Redundancy Wrong

Redundancy errors can be expensive. An employee who believes their redundancy was not genuine — or that their entitlements were not paid — can apply to the Fair Work Commission for:

• An unfair dismissal remedy (reinstatement or compensation up to 26 weeks' pay)
• An order from the Fair Work Ombudsman to recover unpaid entitlements
• A general protections claim if the redundancy was influenced by a protected attribute (e.g. parental leave, union membership, age)

The Fair Work Commission can also reduce redundancy pay if it determines that an employer has made genuine efforts to redeploy an employee or that the employer genuinely cannot afford the full redundancy pay (under the Small Business Fair Dismissal Code).

Redundancy and Unused Annual Leave

All terminating employees — including those being made redundant — are entitled to be paid out their unused accrued annual leave at the time of termination. This is separate from and in addition to redundancy pay.

Payment of unused annual leave is calculated at the employee's base rate plus any applicable leave loading (typically 17.5%, or whatever is higher under their award).

Redundancy and Long Service Leave

If a redundant employee has accrued long service leave entitlements, those must also be paid out at termination. Long service leave rules vary by state, so check the applicable legislation for your location.

Practical Steps Before Making a Redundancy

1. Confirm the redundancy is genuine — document that the role no longer exists and will not be filled by anyone else.
2. Count your employees — confirm whether you fall below the 15-employee threshold.
3. Check the applicable award — review consultation obligations and any redundancy-specific provisions.
4. Assess redeployment options — document your consideration of any other roles available.
5. Calculate entitlements — work out notice pay, redundancy pay (if applicable), unused annual leave, and long service leave.
6. Follow the consultation process — notify, inform, invite views, and document everything.
7. Issue written termination notice — including effective date and details of entitlements paid.

How Reguladar Helps

Redundancy compliance involves overlapping obligations under the Fair Work Act, modern awards, and state long service leave legislation. Keeping track of what applies to your business — and when — is exactly the kind of complexity Reguladar resolves.

Your Reguladar dashboard shows your specific employment law obligations based on your business type, workforce size, and applicable awards — so when a difficult decision like redundancy arises, you already know your obligations before you act.

Don't navigate redundancy blind. Start your free compliance check at Reguladar and see your complete employment law obligations in one place.