Redundancy Pay in Australia (2026): NES Scale, Small Business Exemption, Genuine Redundancy and Tax

Making a role redundant is one of the hardest calls a business owner makes, and getting the money wrong adds a legal problem to a human one. This guide explains redundancy pay in Australia for 2026: the National Employment Standards (NES) scale, who's excluded, how the small business exemption works and when it doesn't, what "genuine redundancy" means for unfair dismissal and for tax, the notice you still owe, and how the 2026-27 tax-free limit applies. It's written for employers and employees, with worked examples in Australian dollars.

Quick answer

Under section 119 of the Fair Work Act, an employee whose job is no longer needed by anyone gets redundancy pay of 4 to 16 weeks at their base rate, depending on continuous service — provided they have at least 1 year of service and the employer has 15 employees or more. Notice (or pay in lieu) and unused leave are paid on top. For a genuine redundancy, A$13,598 + A$6,801 per year of service is tax-free in 2026-27.

• Small business employers (under 15 employees) are exempt from NES redundancy pay

• Casuals, fixed-term staff and those dismissed for serious misconduct are excluded

• Scale peaks at 16 weeks (9–10 years) and drops to 12 weeks from 10 years

• Awards and enterprise agreements can require more — or require small businesses to pay

• Fair Work Commission can reduce NES redundancy pay in limited cases

What counts as a redundancy

Section 119 of the Fair Work Act gives redundancy pay when employment ends at the employer's initiative because the employer no longer requires the job to be done by anyone — other than through the ordinary and customary turnover of labour — or because of the employer's insolvency or bankruptcy.

The key words are "by anyone". A redundancy is about the job, not the person. Closing a site, automating a process, losing a major contract and merging two roles into one are classic examples. Replacing the employee with someone else to do the same job is not a redundancy; it's a dismissal, and it has to be justified on other grounds. Our unfair dismissal guide for small business explains those rules.

A redundancy can also arise when a business relocates and it's reasonable for the employee to refuse the move. The Fair Work Ombudsman says employees may then be entitled to redundancy pay; whether refusal is reasonable depends on the circumstances.

Who gets redundancy pay — and who doesn't

To be entitled to NES redundancy pay, the employee must:

• be employed in the national workplace relations system;
• have at least 1 year of continuous service (casual periods don't count) at the earlier of termination or the date notice is given; and
• work for an employer that isn't a small business employer.

Section 123 then excludes some employees altogether:

• employees engaged for a specified period, task or season — unless that arrangement was used to avoid redundancy pay;
• employees dismissed for serious misconduct;
• casual employees;
• most trainees whose employment is limited to the training arrangement, and apprentices; and
• employees covered by an industry-specific redundancy scheme in a modern award, which applies instead.

Unpaid leave doesn't count toward the length of continuous service, but the Fair Work Ombudsman notes it doesn't break service either.

The NES redundancy pay scale

The amount is worked out from the table in section 119(2), paid at the employee's base rate of pay for ordinary hours. That means no bonuses, loadings, allowances, overtime or penalty rates.

The drop from 16 weeks to 12 at the 10-year mark surprises people. It exists because by 10 years most employees have qualified for long service leave under state law, and the scale assumes the long service leave payout fills the gap. In Victoria and the ACT, where long service leave starts at 7 years, the overlap is even larger. Our long service leave guide sets out each state's rules.

A part-time employee's redundancy pay is based on their own ordinary weekly hours at the base rate. If someone went part-time shortly before the redundancy, the NES uses the current base rate and hours, though some awards and agreements have different rules.

The small business exemption

Section 121(1)(b) says NES redundancy pay doesn't apply if the employer is a small business employer at the time of termination or when notice is given, whichever is first. A small business employer has fewer than 15 employees. The Fair Work Commission counts heads, not full-time equivalents, and includes:

• every full-time and part-time employee, including the one being made redundant;
• casuals employed on a regular and systematic basis; and
• employees of associated entities, such as a related company in the same group.

Irregular casuals aren't counted. A business with 9 full-timers, 3 part-timers and 3 regular casuals has 15 employees and must pay NES redundancy pay.

When small businesses still pay

The exemption is narrower than many owners think. A small business may still have to pay redundancy when:

• an award has its own scheme. The Fair Work Ombudsman's example is the Timber Award, which requires small businesses to pay redundancy pay — an employee with just over a year's service gets 4 weeks. Other awards with industry-specific redundancy terms include the Black Coal, Building and Construction, Joinery, Manufacturing and Plumbing awards;
• an enterprise agreement or contract promises redundancy pay; or
• insolvency shrank the business. Under section 121(4), if a business became a small business employer only because it terminated employees in the 6 months before bankruptcy or liquidation (or due to insolvency), employees can claim NES redundancy pay. This closes the gap where a failing business cut staff below 15 before going under.

Small businesses must still give notice or pay in lieu and pay out unused annual leave and any long service leave owed.

Notice of termination still applies

Redundancy pay is separate from notice. Section 117 requires written notice of the termination date, and a minimum notice period — or payment in lieu at the full rate of pay for the hours the employee would have worked:

Minimum notice under the NES (s 117)

Continuous service	Notice	If over 45 with 2+ years' service
Up to 1 year	1 week	—
More than 1 year, up to 3 years	2 weeks	3 weeks
More than 3 years, up to 5 years	3 weeks	4 weeks
More than 5 years	4 weeks	5 weeks

Up to 1 year

Notice

1 week

If over 45 with 2+ years' service

—

More than 1 year, up to 3 years

Notice

2 weeks

If over 45 with 2+ years' service

3 weeks

More than 3 years, up to 5 years

Notice

3 weeks

If over 45 with 2+ years' service

4 weeks

More than 5 years

Notice

4 weeks

If over 45 with 2+ years' service

5 weeks

Payment in lieu of notice is calculated at the employee's full rate of pay, which can include loadings and allowances that would have been paid during the notice period — unlike redundancy pay, which uses the base rate. Awards and agreements can set longer notice.

Genuine redundancy: consultation and redeployment

"Genuine redundancy" matters in two separate places: unfair dismissal and tax.

For unfair dismissal, section 389 says a dismissal is a case of genuine redundancy only if:

• the employer no longer required the person's job to be performed by anyone because of changes in the operational requirements of the enterprise;
• the employer complied with any consultation obligation in a modern award or enterprise agreement; and
• it wouldn't have been reasonable in all the circumstances to redeploy the person within the employer's enterprise or an associated entity.

A genuine redundancy can't be an unfair dismissal. But a redundancy that skips award consultation or ignores an obvious vacancy elsewhere in the group can be challenged, even if the redundancy pay was correct. Most modern awards have a consultation clause requiring the employer to notify affected employees of major workplace changes, discuss the effects and ways to reduce them, and give relevant information in writing. Document every step.

For tax, the ATO has its own test in section 83-175 of the Income Tax Assessment Act 1997, explained in ruling TR 2009/2: the position must be abolished and the employee dismissed before reaching age pension age, the dismissal can't be for retirement, disciplinary or inefficiency reasons or the end of a fixed contract, and only the part of the payment that exceeds what the employee would have received by resigning counts. If the employer and employee aren't dealing at arm's length — common in family businesses — the payment can't exceed what an arm's length redundancy would have paid. Voluntary redundancies can qualify where the employer initiated the abolition of the role.

Handling a redundancy step by step

Step 1

Confirm the job is no longer needed by anyone

Step 2

Check the award or agreement for consultation and redundancy terms

Step 3

Consult affected employees and consider redeployment

Step 4

Give written notice (or pay in lieu)

Step 5

Final pay

redundancy pay + unused leave + payslip within 1 working day

Reducing redundancy pay through the Fair Work Commission

An employer can't simply pay less than the NES. But under section 120, it can apply to the Fair Work Commission to reduce NES redundancy pay — to any amount, including nil — if it:

• obtains other acceptable employment for the employee, for example with the purchaser of the business or a related company; or
• can't pay the amount.

The Commission decides what's appropriate. This route is only available for NES redundancy pay; the Fair Work Ombudsman says it can't be used to reduce redundancy pay that comes from an award or enterprise agreement. When a business is sold and the employee moves to the buyer on similar terms, transfer of business rules usually mean no redundancy arises at all, because service carries over.

Tax on redundancy payments in 2026-27

For a genuine redundancy, part of the payment is tax-free. The ATO limit for 2026-27 is:

A$13,598 + (A$6,801 × complete years of service)

The tax-free amount covers the severance payment, a payment in lieu of notice and any gratuity or "golden handshake". It's reported as a lump sum, not as an employment termination payment (ETP). Anything above the limit is an ETP, taxed at concessional rates up to the A$270,000 ETP cap and at the top marginal rate above it.

Some amounts are always outside the redundancy calculation: wages owed, unused annual leave and leave loading, and unused long service leave. In a genuine redundancy, unused annual leave and post-17 August 1993 long service leave are withheld at 32% under PAYG Schedule 7.

A non-genuine redundancy — for example, a voluntary resignation dressed up as a redundancy — gets no tax-free amount; the whole severance is an ETP.

For super, redundancy payments and unused leave paid on termination aren't ordinary time earnings, so the super guarantee doesn't apply to them.

Worked examples in A$

1. Six years' service at a 40-person manufacturer. Rachel, 48, has worked full-time at a Sydney manufacturer for 6 years and 3 months on a base rate of A$1,400 a week. Her role is abolished after consultation.

Redundancy and notice total A$22,400, all tax-free because it's under the A$54,404 limit. NSW pays pro rata long service leave from 5 years when the employer ends the employment.

2. The 10-year cliff. Ben has 9 years and 10 months' service. His NES redundancy pay is 16 weeks. If the redundancy took effect 2 months later, at 10 years, it would be 12 weeks — but he'd then qualify for long service leave in every state, which more than makes up the difference.

3. Small business with 12 staff. A Hobart café with 12 employees (counting its regular casuals) closes its second site and makes a barista with 3 years' service redundant. The café is a small business employer, so no NES redundancy pay is due. It must still give 3 weeks' notice or pay in lieu, pay out unused annual leave, and check that the Hospitality Award or any agreement doesn't require more.

4. A package above the limit. A company pays a manager with 2 complete years' service an A$60,000 genuine redundancy package (including notice). The tax-free amount is A$13,598 + 2 × A$6,801 = A$27,200. The remaining A$32,800 is an ETP, taxed concessionally because it's under the ETP cap.

Voluntary redundancy, alternative roles and employees on leave

Many employers start by asking for volunteers. That's lawful, and a volunteer whose position is then abolished gets the same NES redundancy pay as anyone else. Be careful with the selection: if you choose who goes, use objective criteria such as skills, performance records and the needs of the restructured business, and avoid anything connected to a protected attribute or a workplace right — taking parental leave, making a complaint or being sick. Selecting someone because they're on leave is adverse action under the general protections in the Fair Work Act.

If you can offer an alternative role, put it in writing with the duties, hours, location and pay. Where the employee unreasonably refuses acceptable alternative employment that you've found for them, you can ask the Fair Work Commission to reduce the redundancy pay under section 120 rather than simply withholding it. A role with substantially lower pay, a demotion or a long extra commute usually isn't "acceptable".

Employees on parental leave or workers compensation can be made redundant if their job genuinely disappears, but the employer must consult them like everyone else, and an employee on unpaid parental leave has a right to be told about any significant change to their pre-leave position.

Redundancy key figures (2026)

16 weeks

Maximum NES redundancy pay

9 to under 10 years

15 employees

Small business threshold

Fewer than this = exempt

A$13,598

Tax-free base, 2026-27

plus A$6,801 per year

A$270,000

ETP cap, 2026-27

concessional tax up to here

If redundancy pay isn't paid

An employee who doesn't receive their redundancy pay, notice or leave can first raise it in writing with the employer, then contact the Fair Work Ombudsman, which can investigate and issue a compliance notice. Employees can also recover unpaid amounts through the small claims process in the Federal Circuit and Family Court or a state or territory court. If they think the redundancy was a sham, an unfair dismissal application must reach the Fair Work Commission within 21 days of the dismissal taking effect.

If the employer has gone into liquidation or bankruptcy, employees can claim unpaid entitlements — including redundancy pay — through the Australian Government's Fair Entitlements Guarantee, subject to its eligibility rules and caps. That's also where the section 121(4) insolvency exception to the small business exemption matters, because it can turn a nil NES entitlement into a claimable one.

Common redundancy mistakes

• Miscounting the 15. Include regular casuals and associated entities. One extra regular casual can turn an exempt small business into one that owes NES redundancy pay.
• Using the full rate for redundancy pay. The NES uses the base rate; notice in lieu uses the full rate. Mixing them up overpays one and underpays the other.
• Forgetting the over-45 week. Employees over 45 with 2 or more years' service get an extra week's notice.
• Skipping award consultation. Correct redundancy pay doesn't save a redundancy that ignored the award's consultation clause or an obvious redeployment option.
• Rehiring for the same job. If someone else is soon doing the same job, the redundancy wasn't genuine.
• Treating unused leave as part of the tax-free amount. Leave is taxed separately under Schedule 7.
• Paying late. Pay final entitlements, including redundancy pay, promptly — check your award for any deadline after termination — and issue a payslip within one working day of payment.

Redundancy checklist for employers

0/9

• Job genuinely no longer required by anyone; reasons documented
• Headcount checked (including regular casuals and associated entities) to see if NES redundancy applies
• Award or enterprise agreement checked for consultation and redundancy terms
• Consultation held and redeployment options considered and documented
• Written notice given, or pay in lieu at the full rate
• Redundancy pay calculated at the base rate using the s 119 scale
• Unused annual leave, leave loading and long service leave added to final pay
• Tax-free limit applied and ETP and leave withholding calculated correctly
• Payslip issued within 1 working day of the final payment

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Official links

• Redundancy payFair Work Ombudsman — scale and exceptions
• Notice and Redundancy CalculatorFWO calculators for notice and redundancy
• Genuine redundancy paymentsATO — tax-free part
• ETP rates and thresholdsATO — tax-free limits and ETP caps by year
• Fair Work Act 2009Sections 117–123 and 389

What to do next

Before announcing any redundancy, count your employees properly, read your award's consultation and redundancy clauses, and work out the full cost: redundancy pay, notice, unused annual leave and long service leave. Then make sure the final payslip shows each component and that your PAYG withholding treats the tax-free amount, ETP and leave correctly. If you're unsure whether a dismissal would be a genuine redundancy, read our unfair dismissal guide first.

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

Frequently asked questions

How much redundancy pay am I entitled to in Australia?

Under the National Employment Standards it depends on continuous service: 4 weeks for 1 to 2 years, rising to 6, 7, 8, 10, 11, 13, 14 and a maximum of 16 weeks for 9 to 10 years, then 12 weeks from 10 years. It's paid at the base rate for ordinary hours. You need at least 1 year of service and an employer with 15 employees or more. Awards or agreements can give more.

Do small businesses have to pay redundancy pay?

Usually not. Section 121 of the Fair Work Act exempts small business employers — fewer than 15 employees by headcount, including regular casuals and associated entities — from NES redundancy pay. But a small business must still give notice or pay in lieu, pay out unused leave, and pay redundancy if an award (such as the Timber Award) or an agreement requires it, or if it became small only through insolvency-related terminations.

Why does redundancy pay drop at 10 years?

The NES scale falls from 16 weeks at 9 to under 10 years to 12 weeks at 10 years or more because, at 10 years, most employees qualify for long service leave under state law. The scale assumes the long service leave payout makes up the difference. Where an award or agreement sets its own scale, that applies instead.

How much of a redundancy payment is tax-free in 2026-27?

For a genuine redundancy, the tax-free amount is A$13,598 plus A$6,801 for each complete year of service in 2026-27. It covers the severance payment, payment in lieu of notice and any ex gratia amount. Anything above it is an employment termination payment taxed concessionally up to the A$270,000 ETP cap. Unused annual and long service leave is taxed separately.

Do casual employees get redundancy pay?

No. Section 123 of the Fair Work Act excludes casual employees from the notice and redundancy provisions of the NES, and casual service doesn't count toward the redundancy scale. Fixed-term and specified-task employees, employees dismissed for serious misconduct and most trainees are also excluded, unless the arrangement was used to avoid redundancy pay.

Can an employer reduce redundancy pay?

Only by applying to the Fair Work Commission, and only for NES redundancy pay. Under section 120 the Commission can reduce the amount, even to nil, if the employer finds the employee other acceptable employment or can't afford to pay. Redundancy pay that comes from an award or enterprise agreement can't be reduced this way.

Sources & verification

Figures on this page were checked against the sources below when it was last reviewed on 12 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.Redundancy pay — Fair Work Ombudsman · accessed 12 October 2026
2. 2.Fair Work Act 2009 — sections 117, 119–123 and 389 (compilation of 7 July 2026) — Federal Register of Legislation · accessed 12 October 2026
3. 3.Employment termination payments — key rates and thresholds — Australian Taxation Office · accessed 12 October 2026
4. 4.Genuine redundancy payments — Australian Taxation Office · accessed 12 October 2026
5. 5.PAYG withholding Schedule 7 — unused leave payments on termination — Australian Taxation Office · accessed 12 October 2026
6. 6.What is the minimum period of employment? (Unfair Dismissals Benchbook) — Fair Work Commission · accessed 12 October 2026
7. 7.TR 2009/2 — Income tax: genuine redundancy payments — Australian Taxation Office · accessed 12 October 2026
8. 8.List of payments that are ordinary time earnings — Australian Taxation Office · accessed 12 October 2026