Small Business Fair Dismissal Code (2026): Unfair Dismissal Rules for Employers with Fewer Than 15 Staff

Letting someone go is one of the hardest calls a small business owner makes, and getting the process wrong can turn a sensible decision into an unfair dismissal claim. Australia gives employers with fewer than 15 employees a simpler route: the Small Business Fair Dismissal Code. This guide explains who counts as a small business, which employees can claim, the 2026 thresholds, what the Code requires for summary and performance dismissals, and how a claim runs through the Fair Work Commission — with a practical checklist and worked examples in Australian dollars. Everything is checked against the Commission's Unfair Dismissals Benchbook and Fair Work Ombudsman guidance as of October 2026.

Quick answer

If you employ fewer than 15 employees (by headcount, including regular casuals) and you follow the Small Business Fair Dismissal Code, the Fair Work Commission will find the dismissal not unfair. Your employees can only claim after 12 months of service, and only if they earn under A$190,100 or are covered by an award or agreement.

• Serious misconduct: dismissal without notice is fair if you reasonably believed it was serious enough

• Everything else: warn, give a valid reason, let them respond and give a real chance to improve

• Employees have 21 days to lodge; fee A$92.70 from 1 July 2026

• Compensation capped at 26 weeks' pay or A$95,050, whichever is less

What unfair dismissal means

Under the Fair Work Act 2009, a dismissal is unfair if the Fair Work Commission finds that it was harsh, unjust or unreasonable, and it was not consistent with the Small Business Fair Dismissal Code (for a small business) and was not a case of genuine redundancy. A dismissal usually means you ended the employment at your initiative, but it can also include a resignation the employee was forced into by your conduct.

For most employers, the Commission weighs a list of factors: whether there was a valid reason connected to the person's capacity or conduct, whether they were told the reason and given a chance to respond, whether a support person was refused, and whether there were earlier warnings about unsatisfactory performance. Small business employers get a shortcut. Where the employer is a small business, the Commission first asks whether the dismissal was consistent with the Code. If it was, the employee has not been unfairly dismissed, and the Commission doesn't need to go through the general harsh-unjust-unreasonable analysis.

That shortcut only works if you can prove you followed the Code. The employer carries the burden, so the habit that protects you is simple: write things down as they happen.

Are you a small business employer?

The Act's test in section 23 is a headcount, not a full-time-equivalent figure or a turnover number. You are a small business employer if you employ fewer than 15 employees at the relevant time. For dismissal purposes, the relevant time is immediately before the dismissal or when notice was given, whichever came first.

Count these people:

• all full-time and part-time employees;
• regular casuals — those employed on a regular and systematic basis (irregular, occasional casuals don't count);
• the employee you're dismissing, and anyone else dismissed at the same time; and
• employees of associated entities, such as related companies under common control, which are treated as one employer.

A café trading through two related companies with eight staff each is not a small business, because the 16 employees are counted together. Contractors who are genuinely independent aren't counted, but a "contractor" who is really an employee would be.

Unfair dismissal figures (2026-27)

15 employees

Small business = fewer than

headcount incl. regular casuals

12 months

Minimum employment — small business

6 months for others

A$190,100

High income threshold

dismissals from 1 July 2026

A$95,050

Compensation cap

or 26 weeks' pay if lower

Which employees can claim unfair dismissal

An employee of a national system employer can apply for an unfair dismissal remedy only if they have completed the minimum employment period and either earn less than the high income threshold or are covered by a modern award or an enterprise agreement.

The minimum employment period

For a small business, the minimum employment period is 12 months; for larger employers it's 6 months. It's measured to the date the dismissal takes effect. Casual service only counts if the person was a regular casual employed on a regular and systematic basis and had a reasonable expectation of continuing employment on that basis. A casual called in sporadically — with gaps of months between shifts — typically can't count that time. Our guide to casual employee rights explains the 2024 casual definition.

Some periods are excluded from service, such as unpaid leave that isn't authorised, and a gap in a casual's work pattern can break continuity. If you're near the line, work out the dates carefully.

The high income threshold

For dismissals on or after 1 July 2026, the threshold is A$190,100; for dismissals up to 30 June 2026 it was A$183,100. It's indexed every 1 July. Earnings include wages, amounts paid on the employee's behalf at their direction and the agreed money value of non-monetary benefits, such as a car. They don't include compulsory super guarantee contributions, reimbursements, or payments that can't be determined in advance, such as commissions, incentive bonuses and non-guaranteed overtime.

An employee above the threshold who isn't covered by an award or enterprise agreement can't claim unfair dismissal. But an employee covered by an award can claim whatever they earn, so a highly paid award-covered tradesperson is still protected.

Employers outside the national system

Almost all private businesses in New South Wales, Victoria, Queensland, South Australia, Tasmania, the ACT and the Northern Territory are in the national system. In Western Australia, only constitutional corporations (such as Pty Ltd companies) are; sole traders, partnerships and trusts that aren't incorporated fall under the WA state system, which has its own unfair dismissal rules.

What the Small Business Fair Dismissal Code requires

The Code is short — about a page — and has two parts: summary dismissal and other dismissal. A dismissal is consistent with the Code if you were a small business employer at the relevant time and you complied with it.

Summary dismissal for serious misconduct

The Code says it is fair to dismiss an employee without notice or warning when you believe on reasonable grounds that their conduct is serious enough to justify immediate dismissal. Serious misconduct includes theft, fraud, violence, sexual harassment and serious breaches of work health and safety procedures.

The Commission doesn't have to decide whether the misconduct actually happened. It asks whether you genuinely believed the employee did it, that it was serious and that it justified immediate dismissal — and whether that belief was based on reasonable grounds. Reasonable grounds usually come from an investigation: CCTV, till records, witness statements, and above all putting the allegation to the employee and hearing their side before deciding. A decision made in anger with no inquiry is the classic way to fail this limb.

Other dismissals: performance and conduct

For any dismissal that isn't summary, the Code requires you to:

1. Warn the employee that they're at risk of dismissal if there's no improvement. The warning should ideally be in writing.
2. Give a valid reason based on their conduct or their capacity to do the job.
3. Give them an opportunity to respond to the warning.
4. Give them a reasonable chance to rectify the problem, having regard to their response. That might mean extra training, clearer instructions, or making sure they know what you expect.

In any discussion where dismissal is possible, the employee can bring another person to support them. That person can't be a lawyer acting in a professional capacity.

The Code doesn't set a fixed number of warnings or a fixed improvement period. What's reasonable depends on the problem: a few weeks may be enough for punctuality, while learning a new system may need longer. The test is whether the chance to improve was real, not a box-ticking exercise before a decision already made.

Two routes under the Code

Step 1

Is the conduct serious misconduct (theft, fraud, violence, sexual harassment, serious WHS breach)?

Step 2

Yes: investigate, put the allegation to the employee, decide on reasonable belief

Step 3

No: warn, give a valid reason, hear their response

Step 4

Allow a reasonable chance to improve

Step 5

Dismiss and record

keep the Code checklist and evidence

Genuine redundancy and other exits

A dismissal is not unfair if it's a genuine redundancy. That means you no longer need the person's job to be done by anyone because of changes in the operational requirements of the business, you met any consultation duty in an applicable award or agreement, and it wouldn't have been reasonable to redeploy them within your business or an associated entity. Small business employers are exempt from NES redundancy pay, although an award or agreement can still require it.

Resignations and the end of a genuine fixed-term contract generally aren't dismissals, but a resignation you pressured someone into can be. If an employee simply stops turning up, don't assume they've resigned: contact them in writing, ask them to explain the absence and keep a record before treating the employment as ended.

Notice and final pay

Following the Code doesn't remove the duty to give notice for non-summary dismissals. The National Employment Standards set the minimum, or you can pay in lieu:

Casuals, employees on a genuine fixed-term contract and those dismissed for serious misconduct don't get NES notice. Awards and contracts can provide more. Final pay should include outstanding wages, accrued annual leave (with any leave loading the award requires on termination), notice paid in lieu and super. Keep the termination letter, the reasons and the payment record together.

The dismissal checklist

The Code comes with a checklist that the Commission may ask to see. Completing it isn't proof that you followed the Code, and it isn't compulsory, but it forces you to record the facts at the time — which is what wins disputes later.

Before you dismiss — small business checklist

0/10

• Headcount confirmed under 15 employees (full-time, part-time, regular casuals, associated entities, the person being dismissed)
• Employee's start date checked against the 12 months minimum employment period
• Award or agreement coverage and earnings checked against A$190,100
• Serious misconduct: allegation investigated, put to the employee and response considered
• Other dismissal: written warning with a valid reason given and dated
• Employee given an opportunity to respond and a reasonable time to improve, with support offered
• Support person (not a lawyer) allowed at meetings where dismissal was possible
• Termination letter states the reason and the date the dismissal takes effect
• Notice or pay in lieu, accrued leave and super calculated and paid
• Code checklist, warnings, notes and witness statements filed together

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How a claim runs at the Fair Work Commission

An employee must lodge an unfair dismissal application (Form F2) within 21 days after the dismissal takes effect. The day of dismissal isn't counted, so day one is the next day. If day 21 lands on a weekend or a public holiday when the Commission is closed, the deadline moves to the next business day; holidays in the middle of the period don't extend it. Late applications are accepted only in exceptional circumstances. The application fee is A$92.70 from 1 July 2026, and applicants facing serious hardship can ask for it to be waived.

The Commission then sends you the application and asks you to respond on Form F3, usually within 7 days. In the response you give the dates, the reasons for dismissal, your answer to the employee's arguments and any jurisdictional objection — for example, that the employee hadn't served 12 months, earned above the threshold, or that you complied with the Code. A jurisdictional objection is usually decided at a hearing, often after conciliation.

Most claims go to an optional, usually online, conciliation about five weeks after lodgement. The Commission reports that around three out of four cases settle there. Unresolved cases go to a conference or hearing before a Commission Member. If the dismissal is found unfair, the primary remedy is reinstatement; compensation is awarded only if reinstatement isn't appropriate, and it's capped.

The compensation cap is the lesser of the employee's pay for the 26 weeks before dismissal or half the high income threshold — A$95,050 for dismissals from 1 July 2026. In practice, awards against small businesses are usually far below the cap, because the Commission deducts what the employee earned elsewhere and considers the effect on the viability of your business.

Separate from unfair dismissal, an employee can bring a general protections claim if they say they were dismissed for a prohibited reason — for example, because they made a complaint, took leave or exercised a workplace right such as the casual employee choice pathway. That claim also has a 21 days deadline, but the minimum employment period and the Code don't block it, so a lawful reason documented at the time matters even for a new employee.

A typical claim, from dismissal to outcome

Day 0

Dismissal takes effect (not counted)

Day 1–21 days

Employee lodges Form F2 and pays A$92.70 (or seeks a waiver)

About 7 days after service

Employer lodges Form F3 response and any jurisdictional objection

About 5 weeks after lodgement

Optional conciliation — around 3 in 4 cases settle

Afterwards

Jurisdictional hearing, conference or hearing; reinstatement or capped compensation if unfair

Worked examples

1. Counting heads. A Geelong plumbing firm has 7 full-time staff, 2 part-timers, 3 casuals on a regular weekly roster and 2 casuals called in only for big jobs a few times a year. It's dismissing one full-timer. Headcount: 7 + 2 + 3 = 12 (the dismissed employee is already among the full-timers, and the occasional casuals don't count). It's a small business, so the Code and the 12 months minimum period apply.

2. Inside the minimum period. An apprentice joined that firm on 1 November 2025 and is dismissed for poor attendance effective 15 October 2026. With less than 12 months of service, they can't claim unfair dismissal. The firm should still give notice (1 week) and have a lawful, recorded reason, because a general protections claim is not barred by the minimum period.

3. The high income threshold. An award-free operations manager earning A$195,000 a year is dismissed in September 2026. Because A$195,000 exceeds A$190,100 and no award or agreement applies, they can't bring an unfair dismissal claim. A site supervisor on A$195,000 who is covered by an award could.

4. The compensation cap. A retail assistant earned A$62,400 a year. Twenty-six weeks' pay is A$31,200, which is lower than A$95,050, so A$31,200 is the most the Commission could order. For an award-covered employee on A$210,000, 26 weeks' pay is A$105,000, so the A$95,050 dollar cap applies instead.

5. The 21-day clock. A dismissal takes effect on Friday 2 October 2026. Day one is Saturday 3 October, so day 21 is Friday 23 October 2026 — the last day to lodge.

6. Notice. A 50-year-old bookkeeper with four years' service is dismissed for performance after the Code process. Minimum notice is 3 weeks for 3–5 years' service, plus 1 week for being over 45 with at least 2 years' service: 4 weeks, worked or paid in lieu.

Common mistakes small employers make

• Assuming you're small without counting. Regular casuals and related companies push many businesses over the line.
• Firing on the spot without an inquiry. Summary dismissal needs a reasonable belief — investigate and hear the employee first.
• Warnings that don't say "your job is at risk". A chat about performance isn't a Code warning unless it makes clear that dismissal could follow.
• No real chance to improve. Deciding before the improvement period ends defeats the Code.
• Refusing a support person or letting a meeting turn into an ambush.
• Thin records. If it isn't written down and dated, it's your word against theirs.
• Forgetting notice and final pay, which still apply even when the dismissal is fair.

Official links

• Small Business Fair Dismissal Code (benchbook)Fair Work Commission
• Dismissal rules for small businessFWC small business hub
• Who is protected from unfair dismissal?Eligibility and national system
• High income thresholdCurrent and previous figures
• Process for unfair dismissal claimsSteps, response and conciliation
• Notice of termination and redundancy payFair Work Ombudsman fact sheet

What to do next

Before you act, confirm your headcount, the employee's start date and their award coverage, then work through the Code and the checklist above. Free help is available from the Fair Work Infoline on 13 13 94. If the person is a casual, read our guide to casual employee rights first, and make sure final pay reflects the current minimum wage and super guarantee. The salary slip generator helps you document the final pay.

This is general information, not legal or tax advice — confirm on the official source or with a professional.

Frequently asked questions

What is the Small Business Fair Dismissal Code?

It's a short code made under the Fair Work Act that tells small business employers — those with fewer than 15 employees — how to dismiss fairly. If the Fair Work Commission is satisfied a small business followed the Code, the dismissal is not unfair. It allows immediate dismissal for serious misconduct on reasonable grounds, and otherwise requires a warning, a valid reason, a chance to respond and a reasonable chance to improve.

How long must someone work for a small business before claiming unfair dismissal?

The minimum employment period is 12 months for employees of a small business, compared with 6 months for larger employers. Casual service only counts if the person was a regular casual employed on a regular and systematic basis with a reasonable expectation of continuing work. An employee dismissed before completing the minimum period can't bring an unfair dismissal claim, though other claims such as general protections may still be open.

What is the high income threshold for 2026?

For dismissals on or after 1 July 2026, the high income threshold is A$190,100, up from A$183,100. An employee earning above it can only claim unfair dismissal if a modern award covers them or an enterprise agreement applies. Earnings include wages and agreed non-monetary benefits, but not employer super contributions or amounts that can't be worked out in advance, such as commissions.

How many employees makes a small business under the Fair Work Act?

A small business employer has fewer than 15 employees at the relevant time, counted by heads, not full-time equivalents. Include full-time and part-time staff, regular casuals, the employee being dismissed, anyone dismissed at the same time, and employees of associated entities. Irregular casuals are not counted.

How much compensation can the Fair Work Commission award?

Compensation for unfair dismissal is capped at the lesser of 26 weeks' pay or half the high income threshold. For dismissals on or after 1 July 2026, the dollar cap is A$95,050. Reinstatement is the primary remedy, and the Commission only awards compensation when reinstatement isn't appropriate.

How long does an employee have to lodge an unfair dismissal claim?

21 days after the dismissal takes effect, not counting that day. If the last day falls on a weekend or a public holiday when the Commission is closed, it rolls to the next business day. The Commission can extend the time only in exceptional circumstances. The application fee is A$92.70 from 1 July 2026, and it can be waived for hardship.

Sources & verification

Figures on this page were checked against the sources below when it was last reviewed on 11 October 2026. Each rate and limit is stored once with its own official source and review date, and official update channels are monitored daily so changes are picked up. How we verify

1. 1.What is the Small Business Fair Dismissal Code? (Unfair Dismissals Benchbook) — Fair Work Commission · accessed 11 October 2026
2. 2.Dismissal rules for small business — Fair Work Commission · accessed 11 October 2026
3. 3.Who is protected from unfair dismissal? (Unfair Dismissals Benchbook) — Fair Work Commission · accessed 11 October 2026
4. 4.What is the minimum period of employment? (Unfair Dismissals Benchbook) — Fair Work Commission · accessed 11 October 2026
5. 5.High income threshold (Unfair Dismissals Benchbook) — Fair Work Commission · accessed 11 October 2026
6. 6.Increase to the application fee for 2026–27 — Fair Work Commission · accessed 11 October 2026
7. 7.Compensation cap (Unfair Dismissals Benchbook) — Fair Work Commission · accessed 11 October 2026
8. 8.Timeframe for lodgment (Unfair Dismissals Benchbook) — Fair Work Commission · accessed 11 October 2026
9. 9.Periods of service as a casual employee (Unfair Dismissals Benchbook) — Fair Work Commission · accessed 11 October 2026
10. 10.Process for unfair dismissal claims — Fair Work Commission · accessed 11 October 2026
11. 11.Notice of termination and redundancy pay (fact sheet) — Fair Work Ombudsman · accessed 11 October 2026