Last reviewed: October 2026.
What is redundancy pay?
Redundancy pay (sometimes called severance pay) is a lump sum that employers must pay under the National Employment Standards (NES) when they end an employee's employment because they no longer need the job done by anyone, or because the business is insolvent or bankrupt (Fair Work Act 2009 s 119). It recognises the employee's service and helps them while they look for new work. Redundancy pay doesn't apply when a job ends through the ordinary and customary turnover of labour, such as a resignation.
Redundancy pay is separate from notice of termination and from the employee's other final pay. It is also separate from the question of whether the redundancy was genuine: see our guide to genuine redundancy for the consultation and redeployment rules.
Redundancy pay scale under the NES
The amount depends on the employee's period of continuous service with you when their employment ends:
| Continuous service on termination | 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 |
Redundancy pay drops to 12 weeks at 10 years' service because, by then, most employees are entitled to long service leave under state or territory law. An award, enterprise agreement, contract or policy may provide more than the NES, but never less.
How to calculate redundancy pay
- Work out continuous service on the termination date. Periods as a casual don't count (s 119(3)). Unpaid leave, such as unpaid parental leave, generally doesn't count towards the length of service for redundancy pay, but it doesn't break continuity.
- Find the number of weeks in the table above.
- Use the base rate of pay for the employee's ordinary hours. The base rate excludes bonuses and incentive payments, loadings, monetary allowances, overtime and penalty rates (s 16).
- Multiply the weekly base rate for ordinary hours by the number of weeks.
Example 1: full-time employee. Sam has worked full-time for 6 years and 4 months. His base rate for 38 ordinary hours is $1,250 a week. His redundancy pay is 11 weeks × $1,250 = $13,750. Sam is 48, so his minimum notice is 4 weeks plus 1 extra week, or payment in lieu at his full rate of pay.
Example 2: part-time employee. Priya works 22.8 ordinary hours a week at a base rate of $30 an hour, which is $684 a week. With 3 years and 2 months of service, her redundancy pay is 7 weeks × $684 = $4,788.
Example 3: former casual. Leo worked as a casual for 2 years and then full-time for 18 months. Only the 18 months of permanent service count, so his redundancy pay is 4 weeks at his base rate.
The figures in these examples are for illustration only; always use the employee's actual base rate under their award, agreement or contract.
Who is not entitled to redundancy pay?
The NES redundancy pay entitlement doesn't apply to (ss 121 and 123):
- employees with less than 12 months' continuous service
- employees of a small business employer (see below)
- casual employees
- apprentices, and employees under certain fixed-period training arrangements
- employees engaged for a specified period, task or season (unless that arrangement was used to avoid redundancy pay, or the fixed-term clause has no effect under the 2-year limits on fixed-term contracts)
- employees dismissed for serious misconduct
- employees covered by an industry-specific redundancy scheme in a modern award
An employee also isn't entitled to NES redundancy pay if they transfer to an associated entity or a new owner of the business that recognises their service, or if they reject an offer from that employer on substantially similar and no less favourable terms that recognises their service (s 122). The Fair Work Commission can order payment if this rule operates unfairly.
The small business redundancy pay exemption explained
Small business employers don't have to pay NES redundancy pay (s 121(1)(b)). A small business employer is one with fewer than 15 employees (s 23). The count is taken immediately before the termination or when notice was given, whichever happened first. When you count:
- include all full-time and part-time employees
- include regular casual employees, but not casuals who work irregularly
- count associated entities (for example, related companies) as one employer
- include the employee being made redundant and anyone else being dismissed at the same time
Example: A café company employs 9 full-time and part-time staff and 2 regular casuals, plus several casuals who are called in occasionally. An associated catering company owned by the same people employs 4 more permanent staff. Counting associated entities together, there are 15 employees (9 + 2 + 4), so the business is not a small business employer and eligible employees must receive redundancy pay.
What small businesses still owe. The exemption only removes NES redundancy pay. A small business employer making a role redundant must still:
- give written notice of termination, or pay in lieu (s 117)
- pay out untaken annual leave, and any long service leave owed under state or territory law
- pay any redundancy pay promised in an award, enterprise agreement, employment contract or policy
- make sure the redundancy is genuine, as an unfair dismissal claim is possible once the employee has 12 months' service
There is also an insolvency exception: if a small business became small because it dismissed employees in the 6 months before going into liquidation or bankruptcy, those employees can still be entitled to redundancy pay (s 121(4)).
Can redundancy pay be reduced?
Yes, in two situations. On your application, the Fair Work Commission can reduce redundancy pay, even to nil, if you obtain other acceptable employment for the employee or if you cannot pay the amount (s 120). The Commission decides what is appropriate, so don't reduce the payment yourself before an order is made.
Other payments due on redundancy
- outstanding wages up to the last day
- notice, or payment in lieu at the full rate of pay
- untaken annual leave, plus leave loading if the award or contract provides for it
- long service leave owed under state or territory law
- any other amounts owed under the award, agreement or contract
Most modern awards require final pay within 7 days after employment ends. Part of a genuine redundancy payment can be tax-free up to a limit set by the ATO each year (a base amount plus an amount for each completed year of service); the rest is taxed as an employment termination payment. Check the ATO's current limits before you process the final pay.
Redundancy pay checklist for employers
- Count your employees correctly to see whether the small business exemption applies.
- Confirm the employee's continuous service, excluding casual periods.
- Check the award, agreement, contract and policies for extra redundancy, notice or final pay terms.
- Calculate redundancy pay at the base rate for ordinary hours.
- Calculate notice or payment in lieu at the full rate of pay.
- Pay out annual leave and any long service leave, and apply the right tax treatment.
- Give a pay slip that shows each component, and keep the records for 7 years.
If a former employee disputes their redundancy or lodges a claim, our Fair Work representation for employers can help you respond. For help calculating redundancy entitlements, call our HR advice line, or use our HR consulting services to plan a restructure.
Need help with your situation? Call our 24/7 HR advice line on 1300 144 002 for free initial advice.
Redundancy pay: frequently asked questions
How much redundancy pay is an employee entitled to?
Between 4 and 16 weeks' base pay under the NES, depending on continuous service. An employee with 10 or more years' service gets 12 weeks.
Do small businesses have to pay redundancy pay?
Not under the NES if they have fewer than 15 employees, counting regular casuals and associated entities. They must still give notice, pay out annual leave and pay any redundancy pay promised in an award, agreement, contract or policy.
Is redundancy pay calculated on the base rate or the full rate?
On the base rate of pay for ordinary hours, which excludes overtime, penalty rates, allowances, loadings and bonuses. Payment in lieu of notice, by contrast, is at the full rate of pay.
Do casual employees get redundancy pay?
No. Casual employees are excluded, and periods of casual employment don't count towards service for redundancy pay.
Is redundancy pay taxed?
Part of a genuine redundancy payment can be tax-free up to the ATO's annual limit. Amounts above the limit are taxed as an employment termination payment.
When does redundancy pay have to be paid?
With the employee's final pay. Most modern awards require final pay within 7 days of the employment ending.
General information only
This content is general information about Australian employment law, current at the date it was last reviewed. It does not take your circumstances into account and is not legal advice. For advice about your situation, call Employment Compass on 1300 144 002.
Last reviewed: October 2026