Employment & Fair Work
What is Redundancy pay?
NES severance
Redundancy pay is a National Employment Standards entitlement owed when a role is genuinely no longer needed. The amount scales with continuous service, from 4 weeks' pay after 1 year to a maximum of 16 weeks at 9 years, and is separate from notice periods and unused leave payouts.
The NES redundancy scale
Redundancy pay under the National Employment Standards is calculated on the employee's base rate of pay for ordinary hours (excluding overtime, penalties and most allowances) and scales with continuous service:
| Continuous service | Redundancy pay |
|---|---|
| At least 1 year, under 2 | 4 weeks |
| 2 to under 3 years | 6 weeks |
| 3 to under 4 years | 7 weeks |
| 4 to under 5 years | 8 weeks |
| 5 to under 6 years | 10 weeks |
| 6 to under 7 years | 11 weeks |
| 7 to under 8 years | 13 weeks |
| 8 to under 9 years | 14 weeks |
| 9 to under 10 years | 16 weeks |
| 10 years or more | 12 weeks |
The drop from 16 to 12 weeks at 10 years looks odd but is deliberate: at that point long service leave typically becomes payable, so the combined termination payment remains substantial. The scale and definitions are set out on the Fair Work Ombudsman's redundancy pay page on fairwork.gov.au, and you can estimate an entitlement with the OneBookPlus redundancy pay calculator.
Who is not entitled
Several groups miss out on NES redundancy pay, and the exclusions matter enormously to small operators. Small business employers, meaning fewer than 15 employees counted by headcount (including regular and systematic casuals) at the relevant time, are exempt from paying redundancy pay altogether, although notice and other termination entitlements still apply. Employees with less than 12 months of continuous service are not entitled regardless of employer size. Casual employees, apprentices, and people employed for a specified task or season whose engagement simply ends are also outside the scheme.
Two caveats stop this being a free pass. First, some modern awards impose industry-specific redundancy schemes that apply even to small business employers, most notably in building and construction, so always check the applicable award before relying on the exemption. Second, the redundancy must be genuine: the role must actually cease to exist (or the employer becomes insolvent), consultation obligations under the award must be met, and redeployment to a suitable available role must be considered. A "redundancy" that refills the same job with a cheaper hire risks an unfair dismissal claim, where the small business exemption does not protect the employer in the same way.
Tax treatment, on the 2025-26 figures
Genuine redundancy payments enjoy generous tax treatment. The tax-free amount is a base amount plus an amount for each completed year of service, and both are indexed every 1 July. For 2025-26 that was $13,100 plus $6,552 per completed year, for an employee under pension age at the time of dismissal. The 2026-27 figures were not re-read for this revision, because ato.gov.au refuses automated requests, so confirm them on the ATO page before you rely on them. On the 2025-26 figures a nine-year employee could receive $13,100 plus $58,968, a total of $72,068, entirely tax free, comfortably covering the 16-week NES entitlement plus any ex gratia component for most salaries.
Anything above the tax-free amount is an employment termination payment (ETP), taxed concessionally up to the ETP cap and withheld through payroll accordingly. Note what is not included: unused annual leave and long service leave are paid out and taxed under their own rules, and payment in lieu of notice sits inside the ETP rules. The tax-free thresholds are indexed each 1 July, so confirm the current figures on the ATO's tax rates and codes pages on ato.gov.au before processing a termination pay. Getting the withholding split right on the final pay (tax-free redundancy, ETP, leave payouts, ordinary earnings) is the single most error-prone payroll event a small business faces, so run the numbers carefully or have your bookkeeper review before payment.
Getting the process right
Redundancy pay is only one line of the final payment. Notice of termination is separate and additional: one to four weeks depending on service, plus one extra week if the employee is over 45 with at least two years of service, payable in lieu if you end employment immediately. Unused annual leave, and long service leave where the state threshold is met, are paid out on top. Superannuation applies to some components but not others, so check each line.
Process matters as much as arithmetic. Most modern awards require consultation about major workplace change before a decision is final: tell affected employees, discuss the reasons and mitigation, and consider redeployment to any suitable vacancy in the business or an associated entity. Document each step. If more than 15 employees are being made redundant, Services Australia must be notified. Employees who believe the redundancy was not genuine can pursue unfair dismissal, so a paper trail showing a real operational reason, genuine consultation and a fair selection method is your best protection. The Fair Work Ombudsman publishes step-by-step guidance and template letters on the fairwork.gov.au redundancy pages.
Run your own Redundancy pay numbers
The definitions above only get you so far; the free OneBookPlus redundancy pay calculator turns them into your own figures in seconds, no sign-up needed.
Redundancy pay frequently asked questions
Does a small business have to pay redundancy pay?
Generally no. Employers with fewer than 15 employees by headcount (including regular and systematic casuals) are exempt from NES redundancy pay, though notice, leave payouts and consultation obligations still apply. Some awards, notably in building and construction, impose their own redundancy schemes that bind small employers too.
Is redundancy pay tax free?
A genuine redundancy payment is tax free up to a base amount plus a per-year-of-service amount, both indexed each 1 July: $13,100 plus $6,552 per completed year of service for 2025-26, for employees under pension age. The 2026-27 figures were not re-read for this revision, so confirm them on the ATO page before you rely on them. Amounts above that are taxed as an employment termination payment at concessional rates. Leave payouts are taxed under separate rules.
Do casual employees get redundancy pay?
No. Casual employees are excluded from NES redundancy pay, as are employees with less than 12 months of continuous service and those engaged for a specified task or season whose engagement simply comes to an end.
Last reviewed and updated: by Bishal Shrestha