Making roles redundant is one of the most difficult decisions a business can face. It often happens during restructures, downturns or when technology changes how work is done.
Handled properly, redundancy is a lawful way to reshape your business and look after people fairly. Handled poorly, it can lead to legal risk, underpayments and reputational damage.
In this guide, we break down what “redundancy” means under Australian law, when it’s genuine, what you need to pay, and a practical, step-by-step process you can follow. We’ve kept it simple, so you can move forward with confidence and care.
What Is Redundancy In Australia?
Redundancy happens when a role is no longer required to be performed by anyone because of business changes. It’s not about an employee’s conduct or performance. Typical reasons include restructures, cost-saving measures, mergers, outsourcing, relocation or the introduction of new systems that remove tasks.
Under the National Employment Standards (NES), eligible employees are entitled to redundancy pay based on continuous service, as well as notice (or pay in lieu) and accrued entitlements. Awards and enterprise agreements often add consultation and process requirements on top of the NES.
It’s important to separate redundancy from other options. For example, standing down an employee is a temporary measure when they cannot usefully be employed due to stoppages of work or other limited circumstances. Redundancy ends employment because the job itself genuinely no longer exists in your structure.
When Is A Redundancy “Genuine”?
To be a “genuine redundancy” under the Fair Work Act, all three of the following generally need to be satisfied:
- Your business no longer needs the job to be done by anyone due to operational changes.
- You have complied with any consultation obligations in an applicable award or enterprise agreement.
- It was not reasonable to redeploy the employee within your business or an associated entity.
1) The Role Is No Longer Required
Look at your proposed structure and position descriptions. If the core duties of the role will not be performed by anyone going forward, that points to a genuine redundancy. If the same or substantially similar duties will continue and be given to someone else, you risk an unfair dismissal claim.
2) Consultation Obligations
Most modern awards require you to consult employees and their representatives about major workplace change that is likely to have significant effects, including job losses. This usually means notifying affected staff in writing, sharing relevant information, inviting feedback and genuinely considering proposals to mitigate impacts.
3) Redeployment Considerations
Before confirming redundancy, consider reasonable redeployment opportunities in your business and any associated entities (for example, within your corporate group). A role can be “reasonable” even if it’s lower paid or at a different location, provided the employee has the skills (or could be trained within a reasonable time).
Selection Criteria Must Be Fair
If you’re reducing headcount in a team, use objective, lawful selection criteria (for example, skills, qualifications, experience, and operational needs). Avoid criteria that could be discriminatory (such as age, disability, pregnancy, family or carer’s responsibilities). Apply criteria consistently and keep brief records of your decision-making.
Redundancy vs Performance or Conduct Issues
Redundancy is not a backdoor for dismissing someone for poor performance or misconduct. If there are performance issues, follow a performance management process instead. Mixing the two can undermine the genuineness of the redundancy.
What Payments Are Owed On Redundancy?
When a redundancy is genuine, the employee may be entitled to:
- Redundancy pay under the NES (based on years of service, except for small business employers with fewer than 15 employees and other limited exclusions)
- Notice of termination (or payment in lieu of notice)
- Accrued but untaken annual leave (and annual leave loading, if applicable)
- Long service leave (according to state or territory laws)
- Any other contractual or award entitlements
Redundancy Pay (NES Scale)
The NES sets a sliding scale from 4 to 16 weeks based on continuous service (noting exemptions such as small business employers, casuals, limited fixed-term roles and some apprentices/trainees).
If you need help estimating figures, you can calculate your redundancy payment and then confirm amounts against your award and contract. If an enterprise agreement applies, check it carefully-some provide different scales or additional benefits.
Notice Of Termination
Employees are entitled to notice based on their service length. You can require them to work the notice period, place them on garden leave, or provide payment in lieu of notice. If your contracts allow, you might combine approaches (for example, partial work, partial pay in lieu) as long as the total entitlement is satisfied.
Accrued Leave And Final Pay
Pay out any accrued but untaken annual leave and applicable loading. Long service leave entitlements vary across states and territories-factor this into your exit figures. For a holistic checklist of what to include, our guide to final pay steps through common inclusions and timing expectations.
Sick Leave And Other Balances
Generally, personal/carer’s leave (sick leave) is not paid out on termination. There are nuances if someone is on personal leave around the time of a restructure-our article on redundancy and sick leave explains how to manage timing, requests and documentation sensitively and lawfully.
Tax Treatment
Genuine redundancy payments can have concessional tax treatment up to certain caps, with any amounts above treated differently. Your payroll or tax adviser can help you calculate tax withheld correctly and provide the right payment summaries.
How To Manage A Redundancy Process (Step-By-Step)
Every business and award is different, but a clear, respectful process will reduce risk and support your team through change. Here’s a practical roadmap.
Step 1: Plan Your Organisational Changes
- Define business reasons (restructure, cost savings, technology, outsourcing).
- Map your proposed structure and confirm which roles are affected (not people).
- Prepare objective selection criteria if reducing headcount in a team.
- Identify any award/enterprise agreement that applies and note consultation rules.
Step 2: Check Consultation Obligations
- Draft a written notice to affected staff outlining the proposed change, reasons, and likely effects, and invite feedback.
- Meet with employees to explain the proposal, answer questions and consider suggestions to avoid or reduce impacts (for example, job sharing, reduced hours, redeployment).
- Allow a reasonable period for consultation before any final decision.
Step 3: Consider Redeployment
- List current vacancies and near-term opportunities across your business and associated entities.
- Assess reasonable suitability against the employee’s skills and training timeframe.
- Make written offers where appropriate, including any trial options.
Step 4: Confirm The Outcome In Writing
- If redundancy proceeds, issue a termination letter confirming the redundancy is genuine, last day of work, notice arrangements, and exit payments.
- Include an outline of how final pay will be calculated and when it will be paid.
- If appropriate, consider offering an Employee Separation Agreement to document additional support (for example, outplacement, references, waivers where lawful).
Step 5: Pay Entitlements And Provide Records
- Process all payments (redundancy pay, notice or pay in lieu, accrued leave, long service leave, and any contractual benefits) in line with required timeframes.
- Provide employment records and a separation certificate if requested.
- Collect company property and manage systems access respectfully and securely.
Step 6: Support Your People
- Offer a private meeting to discuss the change, answer questions and outline support.
- Handle communication with the remaining team thoughtfully to maintain trust.
- Consider practical supports like flexible finish dates, time to attend interviews or referrals to EAP/outplacement services.
Common Mistakes To Avoid
- Skipping award consultation steps or rushing the timeline.
- Using redundancy to address performance issues (they require a different process).
- Failing to consider redeployment within associated entities.
- Applying subjective or discriminatory selection criteria.
- Underpaying entitlements or missing loading and long service leave.
If your situation is complex (multiple locations, an enterprise agreement, or senior executives with tailored contracts), getting tailored redundancy advice early will save headaches later.
Do Consultation And Redeployment Rules Apply To Everyone?
Most of the framework applies broadly, but there are several important exceptions and special cases to understand.
Small Business Employers
Employers with fewer than 15 employees (including regular and systematic casuals, and the employees of associated entities) are generally exempt from NES redundancy pay. However, notice (or pay in lieu), consultation obligations under awards/agreements, and accrued leave payouts still apply.
Casual Employees
Casuals usually aren’t entitled to redundancy pay. That said, if you’re ending regular and systematic engagements, manage communications carefully and ensure all outstanding wages and loadings are paid.
Fixed-Term And Maximum-Term Contracts
Where employment ends at the agreed date, redundancy pay typically doesn’t apply. If you terminate a fixed-term early for operational reasons, different rules can apply-review the agreement and any award. If you regularly roll fixed-terms, consider whether a maximum-term arrangement or permanent conversion obligations may be relevant.
Senior Executives And Special Contract Terms
Executive contracts often contain bespoke notice, incentive and restraint terms. Handle bonuses, equity, garden leave and post-employment obligations carefully. Where appropriate, a tailored mutual separation agreement can help both parties manage risks and move on cleanly.
Employees On Leave Or With Illness/Injury
Redundancy can still occur during parental leave or extended personal leave if the role genuinely no longer exists, but consultation and redeployment steps must still be followed. Timing and communication require extra care. Our detailed guidance on redundancy and sick leave outlines practical steps for these situations.
Awards, Enterprise Agreements And Company Policies
Always cross-check applicable instruments and your own policies. Some provide enhanced redundancy scales, transfer options, or additional consultation steps (for example, longer notice of change, union notification or redeployment pools). If you need template letters or checklists, a tailored termination or redundancy document suite can streamline your process.
Practical Tips To Reduce Risk
- Document decisions: Keep a short record of structural changes, selection criteria and redeployment searches.
- Be consistent: Apply the same criteria each time and avoid exceptions without clear business reasons.
- Communicate early and respectfully: Transparency builds trust, even in tough times.
- Run payroll calculations twice: Redundancy pay, leave loading and long service leave are easy to miscalculate-use internal checks against your final pay checklist.
- Consider timing: Pay in lieu of notice can speed up transitions; garden leave can protect client relationships and IP.
- Offer support: References, outplacement and reasonable flexibility go a long way.
Key Takeaways
- A redundancy is genuine when the job is no longer required, you have consulted (if required) and redeployment isn’t reasonable.
- Typical exit payments include redundancy pay (NES or instrument), notice or payment in lieu, annual leave (and loading) and long service leave.
- Awards and enterprise agreements often require specific consultation steps-don’t skip them.
- Plan your process: define business reasons, consult, consider redeployment, confirm in writing, and process final pay accurately.
- Special cases include small business exemptions, casuals, fixed-term roles and executive contracts-check entitlements carefully.
- When things are complex or sensitive, tailored redundancy advice and a clear Separation Agreement can reduce risk for everyone.
If you’d like a consultation about planning or managing a redundancy process, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.
