Redundancy Pay Rights Australia

What Is Redundancy Pay in Australia?

Redundancy pay is a lump-sum severance payment an employer owes an employee whose position is permanently eliminated due to operational changes. The Fair Work Act 2009 sets the minimum redundancy entitlement through the National Employment Standards (NES), which apply to all national-system employees across every Australian state and territory.

Redundancy pay compensates workers for the loss of job security, seniority, and future earnings capacity. The payment is calculated as a set number of weeks of the employee's base pay rate, determined entirely by their length of continuous service. An employee with 1 year of service receives 4 weeks of base pay; an employee with 9 years receives the maximum of 16 weeks. Base pay excludes overtime, bonuses, loadings, and allowances.

Redundancy pay is separate from notice pay, accrued annual leave, and long service leave. All four components stack together to form the total termination payout. Use our Redundancy Pay Calculator to model the exact dollar breakdown for your salary and service length.

How Is Redundancy Pay Calculated?

Redundancy pay is calculated by multiplying the employee's base weekly pay rate by the number of severance weeks prescribed in the NES table below. The base rate is the ordinary-hours rate excluding overtime, incentive payments, bonuses, loadings, monetary allowances, and penalty rates.

The number of severance weeks increases with continuous service, starting at 4 weeks for 1 year and peaking at 16 weeks for 9–10 years. After 10 years, the entitlement drops to 12 weeks because the employee typically qualifies for long service leave, which serves as a separate compensation mechanism.

The calculation formula is straightforward: Base weekly pay x NES weeks = gross redundancy payment. An employee earning $85,000 per year has a base weekly rate of approximately $1,634.62. With 6 years of continuous service, the NES prescribes 11 weeks, producing a gross redundancy payment of $17,980.77. This amount is separate from any accrued leave, notice pay, or above-NES contractual severance.

Enterprise agreements, modern awards, and individual employment contracts frequently provide redundancy entitlements above the NES minimum. These enhanced terms override the NES only when they are more generous. Check your employment contract or applicable Award Rates to determine whether your entitlement exceeds the statutory floor.

What Is Genuine vs Non-Genuine Redundancy?

A "Genuine Redundancy" is a termination where the employer no longer requires the job to be performed by anyone and has complied with all consultation obligations in the applicable modern award or enterprise agreement. The distinction between genuine and non-genuine redundancy determines whether the tax-free component applies to the severance payment.

The ATO independently assesses whether a redundancy qualifies as genuine at tax time. An employer labelling a termination "redundancy" on the separation certificate does not guarantee genuine status. The employee must also be under age 65 at the time of dismissal to access the tax-free component. Employees over preservation age who receive a non-genuine redundancy have the entire payment taxed as an Employment Termination Payment at marginal or concessional ETP rates.

Step-by-Step: What Happens When You Are Made Redundant?

The redundancy process follows a legally mandated sequence under the Fair Work Act 2009 and applicable modern awards. Employers who skip steps expose themselves to unfair dismissal claims, penalties, and orders for compensation.

1. Consultation notice: The employer notifies affected employees and any union representatives that redundancies are being considered. The applicable award or enterprise agreement specifies minimum consultation periods, typically 7–14 days.
2. Redeployment assessment: The employer assesses whether the employee can be redeployed to a suitable alternative position within the business or any associated entity. Failure to undertake this step converts a genuine redundancy into a non-genuine one.
3. Written notice of termination: The employer provides formal written notice. The minimum notice period is 1 week for employees with less than 1 year of service, 2 weeks for 1–3 years, 3 weeks for 3–5 years, and 4 weeks for 5+ years. Employees over 45 with at least 2 years of service receive an additional week.
4. Final pay calculation: The employer calculates all entitlements: redundancy pay (NES weeks), notice pay (or payment in lieu), accrued annual leave, accrued long service leave, and any outstanding wages or loadings.
5. Payment and separation certificate: Final payments must be made on or before the employee's last working day, or no later than 7 days after termination. The employer issues a separation certificate and PAYG payment summary reflecting the tax-free component (if genuine) and any ETP amounts.
6. Centrelink waiting period: The employee may apply for JobSeeker Payment, but redundancy pay and leave payouts generate an "Income Maintenance Period" that delays eligibility by the number of weeks covered by the payout. Check our Centrelink Income Test guide for threshold details.

How Is Redundancy Pay Taxed?

Genuine redundancy payments are tax-free up to a limit set annually by the ATO. For FY2025-26, the tax-free limit is a base amount of $12,524 plus $6,263 for each completed year of continuous service. Any amount exceeding this limit is taxed as an Employment Termination Payment (ETP).

Tax-Free Limit Formula

The formula is: Tax-free amount = $12,524 + ($6,263 x completed years of service). The ATO indexes these thresholds annually. Only whole completed years count — 4 years and 11 months rounds down to 4 years.

Worked Example: Taxing a $90,000 Redundancy Package

Sarah earns $95,000 per year and is made genuinely redundant after 8 complete years of service. Her employer pays her a total redundancy package of $90,000, which includes 14 weeks of NES redundancy pay plus a contractual top-up.

Sarah receives $62,628 completely tax-free. The remaining $27,372 is classified as an ETP. Because Sarah is under 65 and under preservation age, this ETP component is taxed at a maximum rate of 32% (including the 2% Medicare levy) up to the ETP cap of $245,000 for FY2025-26. Her tax on the ETP portion is approximately $8,759.

Use the Australian tax calculator on our Pay Calculator home page to model how your total income in the termination year affects your marginal tax rate and overall take-home pay after redundancy.

What Are Employment Termination Payments (ETPs)?

An Employment Termination Payment is any lump sum paid to an employee because their employment ends, excluding the genuine redundancy tax-free component, accrued leave, and superannuation. ETPs include golden handshakes, gratuities, non-genuine redundancy payments, and any genuine redundancy amount that exceeds the ATO's tax-free limit.

The ATO classifies ETPs into two types. A "Life Benefit ETP" is paid directly to the employee while alive. A "Death Benefit ETP" is paid to a dependant or the estate of a deceased employee. The tax treatment differs significantly between the two, and within life benefit ETPs, the rate varies based on whether the employee has reached preservation age.

The ETP cap for FY2025-26 is $245,000. Any ETP amount exceeding this cap is taxed at the top marginal rate of 47% (including Medicare levy). The whole-of-income cap also applies — if your total taxable income plus ETP exceeds $180,000, the portion above that threshold is taxed at 47%. Understanding these thresholds is critical for executives and long-tenured employees with large separation packages.

What Other Entitlements Are Paid on Termination?

Redundancy pay is only one component of the total termination payout. Employees are entitled to at least 4 additional payments on top of their NES redundancy: notice pay, accrued annual leave, accrued long service leave (if eligible), and outstanding wages.

Notice Pay (Payment in Lieu of Notice)

Notice pay compensates the employee for the notice period they would have worked. The NES minimum notice period ranges from 1 week (under 1 year of service) to 5 weeks (over 45 years old with 5+ years of service). Payment in lieu of notice is taxed as ordinary income at the employee's marginal PAYG withholding rate, not at concessional ETP rates. Use our PAYG Withholding Tables to check the applicable rate.

Accrued Annual Leave

All untaken annual leave must be paid out on termination regardless of the reason for ending employment. Annual leave is taxed at the employee's marginal rate. A 17.5% annual leave loading applies under most modern awards, calculated on the base rate of pay for the accrued leave hours. Check our Annual Leave Guide for loading details by industry.

Outstanding Wages and Allowances

The employer must pay all wages earned up to the termination date, including shift loadings, penalty rates, overtime, commissions, and allowances. These amounts are taxed as ordinary income at the employee's marginal rate.

The employer's superannuation guarantee obligation of 12% for FY2025-26 applies to ordinary time earnings up to and including the termination date. Super is not payable on the redundancy pay component itself, but it is payable on notice pay worked out. Read our Superannuation Guide for detailed SG rate information.

Are Small Businesses Exempt from Redundancy Pay?

Small businesses with fewer than 15 employees at the time of termination are fully exempt from paying NES redundancy pay. This exemption is absolute — the employer pays zero weeks of severance regardless of how long the employee worked there.

The 15-employee threshold counts all employees including casual employees engaged on a regular and systematic basis. It includes employees across all locations, branches, and associated entities. Part-time employees count as one full headcount, not a fraction. The headcount is assessed at the exact time the termination notice is given, not at the start of employment or any earlier date.

Even when the small business exemption applies, the employer still owes notice pay, accrued annual leave, accrued long service leave, and outstanding wages. Only the redundancy pay (severance weeks) component is exempt. Employees of small businesses who believe the headcount was artificially reduced to trigger the exemption can challenge the decision through the Fair Work Commission.

Some enterprise agreements and employment contracts override the small business exemption by including redundancy clauses that apply regardless of employer size. Always check the specific terms of your agreement.

How Does Long Service Leave on Redundancy Vary by State?

Long service leave entitlements on redundancy are governed by state and territory legislation, not the NES. Each jurisdiction sets different qualifying periods, accrual rates, and pro-rata access rules for employees terminated by redundancy.

In NSW, employees terminated by redundancy after 5 years of continuous service receive a pro-rata long service leave payout, the most accessible threshold in Australia. South Australia and the Northern Territory provide the most generous full entitlement at 13 weeks after 10 years. Victoria, Queensland, Western Australia, and Tasmania share the standard 8.67 weeks after 10 years with pro-rata access after 7 years on redundancy.

Long service leave payouts on redundancy are taxed differently depending on when the leave was accrued. Leave accrued before 16 August 1978 is entirely tax-free. Leave accrued between 16 August 1978 and 17 August 1993 is taxed at a flat 32%. Leave accrued after 17 August 1993 is taxed at the employee's marginal rate.

What Changed in FY2025-26?

The ATO indexed the genuine redundancy tax-free limits for FY2025-26, increasing the base limit to $12,524 and the per-year-of-service amount to $6,263. These figures rose from $12,094 and $6,049 respectively in FY2024-25, reflecting CPI indexation.

The ETP cap for FY2025-26 increased to $245,000, up from $235,000 in FY2024-25. The whole-of-income cap remains at $180,000. These caps determine at what point ETP taxation escalates to the top marginal rate of 47%.

The superannuation guarantee rate remains at 12% for FY2025-26, holding steady after the final legislated increase took effect on 1 July 2025. Employers must pay SG on ordinary time earnings up to the maximum super contribution base of $65,070 per quarter. This affects the superannuation component of termination payouts for high-income employees.

Income tax brackets for FY2025-26 reflect the Stage 3 tax cuts implemented from 1 July 2024, with the 19% bracket applying to income between $18,201 and $45,000, the 30% bracket from $45,001 to $135,000, the 37% bracket from $135,001 to $190,000, and the 45% bracket above $190,000. These rates affect the marginal taxation of notice pay, accrued leave, and above-cap ETP amounts. Check our PAYG Withholding Tables for the full FY2025-26 bracket structure.

Related Resources

These Australian tax and pay calculators provide detailed modelling for each component of a redundancy termination payout.

• Redundancy Pay Calculator — model the exact tax-free component, ETP tax, and net payout for your salary and service length
• Superannuation Guide — understand how the 12% SG rate applies to termination payments and ordinary time earnings
• PAYG Withholding Tables — check the withholding rates applied to notice pay and accrued leave payouts
• Annual Leave Guide — calculate accrued annual leave balances and the 17.5% loading on payout
• Centrelink Income Test — determine how redundancy payments affect JobSeeker eligibility and waiting periods
• Tax Refund Guide — understand how a mid-year termination affects your annual tax refund calculation

Frequently Asked Questions