The Fair Work test
The Fair Work Ombudsman summarises the test in the Fair Work Act as two requirements, both of which must be met:
- The employee's job no longer needs to be done by anyone because of changes in the employer's business.
- The employer followed the consultation requirements in the relevant award or enterprise agreement.
A redundancy is also not genuine if the employer could have reasonably given the employee another job within the employer's business or an associated entity. That is the redeployment question: was there a reasonable alternative role, including in a related company?
What the test controls: if the redundancy is genuine, the employee cannot get an unfair dismissal remedy. If the redundancy isn't genuine, an unfair dismissal claim becomes possible, subject to the usual eligibility rules. The Fair Work Ombudsman can't decide the question; the Fair Work Commission does, if a claim is made.
Consultation: the limb employers most often miss
Every award and enterprise agreement contains a consultation clause for major workplace change. When redundancies are proposed, the employer has to act as soon as possible to:
- Notify affected employees and any representatives about the proposed changes.
- Provide all relevant information about the changes in writing.
- Discuss the changes and strategies to reduce the negative effects on employees.
- Consider ideas or suggestions raised by employees.
A role can be genuinely surplus and the redundancy can still fail the Fair Work test because this process was skipped. Where 15 or more employees are to be made redundant, the employer must also notify Services Australia in writing before the redundancies take effect.
The tax test
For tax, a genuine redundancy payment gets a tax-free amount: $13,598 plus $6,801 per completed year of service in FY 2026–27. The ATO has its own conditions for that treatment, separate from the Fair Work test. One of them is age: you must be dismissed before age-pension age (67). The ATO also sets out what a genuine redundancy payment may include, such as pay in lieu of notice, severance based on years of service and a gratuity or golden handshake, and what it can't, such as unused annual leave and long service leave, which are taxed separately.
Why the two tests can give different answers
Because the tests are separate, passing one doesn't settle the other. The clearest example is age. Take a properly consulted redundancy of a 68-year-old: the role is gone and the process was followed, so it is genuine for Fair Work purposes. But the dismissal is after age-pension age, so for tax there is no tax-free amount and the whole payment is an ordinary ETP.
The reverse matters too. Getting the tax treatment right on the payslip says nothing about whether the consultation clause was followed, so an employer who pays a tax-free redundancy can still face an unfair dismissal claim if the process was skipped.
What the tax label is worth
Take a 50-year-old on $1,700 a week with 9 completed years, paid the NES weeks plus a $30,000 ex-gratia amount: $57,200 in total.
| Treatment | Tax-free | Taxable ETP | Tax |
|---|---|---|---|
| Genuine redundancy | $57,200 | $0 | $0 |
| Not genuine (ordinary ETP) | $0 | $57,200 | $18,304 |
The difference is $18,304 in tax on the same gross amount.
Redundancy pay can be reduced, but only through the Commission
An employer can apply to the Fair Work Commission to reduce NES redundancy pay, possibly to nil, if it finds other acceptable employment for the employee or cannot afford the full amount. That option is only available when the entitlement comes from the NES, not from an award or enterprise agreement. On a business sale, the Fair Work Act also removes NES redundancy pay where your service carries over to the new employer, or where you reject a comparable offer that recognises your service (the Commission can order payment if that outcome is unfair).
Frequently asked questions
Who decides whether my redundancy is genuine?
For unfair dismissal purposes, the Fair Work Commission, if you make a claim. The Fair Work Ombudsman says plainly that it cannot decide whether a redundancy is genuine. For tax, the ATO conditions apply to the payment itself.
My job was advertised a month after I was made redundant. Was it genuine?
The first limb of the Fair Work test is that the job no longer needs to be done by anyone. If the same role is re-advertised, that is strong reason to question it. Get advice quickly: unfair dismissal claims have short deadlines.
Does a non-genuine redundancy mean I get more money?
Not automatically. It opens the door to an unfair dismissal claim, which is a separate process with its own remedies. It can also mean the payment is taxed as an ordinary ETP with no tax-free amount.
Related
Sources
Figures on this page come from the following primary sources. The date is when we last checked the page against the source.
- Redundancy (Fair Work Ombudsman), checked 24 September 2026.
- Redundancy pay (Fair Work Ombudsman), checked 24 September 2026.
- Fair Work Act 2009 (Cth), ss 119 to 123 (Federal Register of Legislation), checked 24 September 2026.
- Genuine redundancy payments (ATO), checked 10 August 2026.
- Redundancy and early retirement (for employers) (ATO), checked 7 August 2026.
- Key superannuation rates and thresholds: employment termination payments (ATO), checked 7 August 2026.
- Schedule 11: tax table for employment termination payments (ATO), checked 7 August 2026.
Independent guide — not a government service, and not financial, legal or tax advice.