1. Check the redundancy is genuine
Under the Fair Work Act a redundancy is genuine only if the job no longer needs to be done by anyone because of changes in your business, and you followed the consultation requirements in the relevant award or agreement. It is not genuine if you could reasonably have redeployed the employee within your business or an associated entity. A redundancy that fails this test can be challenged as an unfair dismissal.
Consultation means, as soon as possible:
- 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.
If you're making 15 or more employees redundant, notify Services Australia in writing before the redundancies happen.
2. Work out whether NES redundancy pay applies
Count every employee at the time of the redundancy, including those being made redundant, regular and systematic casuals, and employees of associated entities. Under 15 employees, NES redundancy pay generally doesn't apply, with two exceptions covered in the small business guide. It also doesn't apply to employees with less than a year's service, casuals, fixed-term or task employees, serious misconduct, trainees on a training arrangement, or apprentices.
3. Calculate the weeks, at base rate
| Completed service | Weeks of pay |
|---|---|
| 1 to under 2 years | 4 |
| 2 to under 3 years | 6 |
| 3 to under 4 years | 7 |
| 4 to under 5 years | 8 |
| 5 to under 6 years | 10 |
| 6 to under 7 years | 11 |
| 7 to under 8 years | 13 |
| 8 to under 9 years | 14 |
| 9 to under 10 years | 16 |
| 10+ years | 12 |
The weeks are paid at the employee's base rate for ordinary hours, excluding incentive-based payments and bonuses, loadings, monetary allowances, overtime or penalty rates. For an employee on $1,400 a week base plus $250 in shift loading with 5 years' service, the NES amount is 10 × $1,400 = $14,000, not $16,500. Note the step-down: from 10 years the NES amount is 12 weeks, less than at 9.
4. Give notice, or pay it out in full
NES notice is 1 to 4 weeks by service, plus one week for employees over 45 with at least 2 years' service. If you pay it out, the payment must equal what the employee would have earned working it, including loadings, allowances, overtime, penalties and bonuses, and it must be paid on or before the termination day.
5. Pay the rest of the final pay
- Wages owing for hours worked, including penalty rates and allowances
- Unused annual leave, including leave loading if it would have been paid during employment
- Payment in lieu of notice (if it applies)
- Redundancy pay (if it applies)
- Accrued or pro-rata long service leave (if it applies)
Most awards require the final pay within 7 days of the last day. Sick and carer's leave is not paid out. Long service leave depends on the state law and the exit reason; redundancy qualifies in every state once the employee passes that state's pro-rata threshold.
6. Withhold tax on each component
- Genuine redundancy payment (NES weeks, any extra severance, and pay in lieu of notice): tax-free up to $13,598 + $6,801 per completed year in FY 2026–27; the excess is an ETP withheld at 32% under preservation age or 17% at or over it, up to the $270,000 cap.
- Unused annual leave and long service leave: Schedule 7. On a genuine redundancy, annual leave and loading are withheld at 32% whatever the accrual date, and long service leave at 32% for service from 16 August 1978 (a small pre-1978 portion is taxed differently).
- Employees at or over age-pension age: no tax-free amount; the whole payment is an ordinary ETP.
Pay ETPs within 12 months of termination. Outside that window a payment is generally taxed at marginal rates instead, although the rule doesn't apply to the taxable part of a genuine redundancy payment.
7. Super and reporting
Under Payday Super, super guarantee of 12% applies to pay in lieu of notice and to wages for days worked, but not to redundancy pay or unused leave. Report the ETP through Single Touch Payroll by payment date and type, with its taxable and tax-free components and the tax withheld. You don't issue a payment summary for amounts reported through STP; the employee sees them on their myGov income statement.
The mistakes that cause disputes
- Paying redundancy weeks on total earnings instead of base rate (overpayment), or pay in lieu on base rate (underpayment).
- Leaving the employees being made redundant, or regular casuals, out of the 15-employee count.
- Missing the 10-year step-down, or the over-45 notice week.
- Skipping the award consultation steps because the role is obviously surplus.
- Reducing redundancy pay for alternative employment without a Fair Work Commission order.
- Paying super on the redundancy amount, or leaving it off pay in lieu of notice.
Frequently asked questions
Do I pay redundancy on base rate or total earnings?
Base rate for ordinary hours. NES redundancy pay excludes incentive-based payments and bonuses, loadings, monetary allowances, overtime or penalty rates. Pay in lieu of notice is the opposite: it must include them.
Can I pay less redundancy if I find the employee another job?
You can apply to the Fair Work Commission to reduce NES redundancy pay, possibly to nil, if you find other acceptable employment for the employee or cannot afford the full amount. You can't reduce it yourself, and the option isn't available where the entitlement comes from an award or agreement.
Do I withhold tax from redundancy pay?
On a genuine redundancy, the first $13,598 plus $6,801 per completed year (FY 2026–27) is tax-free. Anything above is an ETP withheld under Schedule 11. Unused leave is withheld under Schedule 7.
Do I pay super on redundancy pay?
No. Redundancy pay and unused leave paid on termination are not qualifying earnings. Pay in lieu of notice is, so 12% super applies to it.
Related
- Small business redundancy exemption
- What makes a redundancy genuine
- Notice periods and pay in lieu
- Final pay calculator
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 and entitlements (Fair Work Ombudsman), checked 7 August 2026.
- Who doesn't get redundancy pay (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.
- Notice and ending employment (dismissal) (Fair Work Ombudsman), checked 24 September 2026.
- Final pay (Fair Work Ombudsman), checked 24 September 2026.
- Genuine redundancy payments (ATO), checked 10 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.
- Schedule 7: tax table for unused leave payments on termination (ATO), checked 7 August 2026.
- What payments are qualifying earnings (ATO), checked 24 September 2026.
- The 12-month rule (ETPs) (ATO), checked 24 September 2026.
- STP Phase 2: when an employee transfers or leaves (ATO), checked 24 September 2026.
Independent guide — not a government service, and not financial, legal or tax advice.