When a role is no longer needed, getting the redundancy calculation wrong can expose you to Fair Work complaints, underpayment claims and real legal risk. In this article, we’ll walk you through exactly how to calculate redundancy pay under the National Employment Standards – who qualifies, how to work out the numbers, and what else you need to pay on top.

Step 1: How to check whether redundancy pay applies

Before you calculate anything, confirm the employee is actually entitled to redundancy pay. Under the National Employment Standards, redundancy pay applies to most full-time and part-time employees – but not everyone.

Redundancy pay does not apply if:

• the employee has worked for less than 12 months continuously
• they are a casual employee
• you are a small business with fewer than 15 employees at the time of termination
• the termination is for serious misconduct or the employee resigns
• the role transfers to a related entity and the employee continues with no loss of service
• the employee is a trainee or apprentice whose contract ends at its scheduled completion date

Worth noting: casual employees working irregular hours generally don’t count toward the 15-employee threshold, but regular and systematic casuals may. If you’re unsure which category your casual employees fall into, it’s worth checking before you assume the small business exemption applies.

Step 2: How to calculate base weekly pay for redundancy

Redundancy pay is calculated on base weekly pay only – ordinary time earnings, with no overtime, bonuses, allowances or penalty rates included.

If your employee is on an annual salary: divide by 52.

Example: $78,000 ÷ 52 = $1,500 base weekly pay

Step 3: Apply Fair Work’s redundancy pay scale

Use the employee’s total continuous service to find the right number of weeks. This is the Fair Work redundancy scale as it currently stands:

*Redundancy pay drops back to 12 weeks at 10 years because long service leave entitlements generally begin accruing around that point.

You can also use the Fair Work redundancy pay calculator to check your figures.

Worked example

Employee on $78,000 per year, 5 years of continuous service:

• Base weekly pay: $78,000 ÷ 52 = $1,500
• 5 years of service = 10 weeks of redundancy pay
• Total redundancy pay: $1,500 × 10 = $15,000

Step 4: How to check whether their award or enterprise agreement pays more

The NES scale is a minimum. Some modern awards and enterprise agreements require redundancy payments above these amounts. Awards that commonly include higher redundancy entitlements include the Clerks – Private Sector Award, the Manufacturing and Associated Industries and Businesses Award, and the Professional Employees Award.

Always check the relevant award for the employee’s role before finalising the number. If their award is more generous, that’s what you must pay.

Step 5: What else needs to be paid on termination

Redundancy pay is separate from the other entitlements you need to pay out. The full final pay typically includes:

• Notice pay – either worked or paid as a lump sum in lieu, based on length of service (1 to 4 weeks under the NES, plus an extra week if the employee is over 45)
• Unused annual leave – always required to be paid out in full
• Long service leave – depends on tenure and your state’s legislation
• Pro-rata entitlements – any other leave the employee has accrued

A common mistake is treating notice pay as part of the redundancy payment. They are separate obligations.

Step 6: How redundancy pay is taxed in Australia

Genuine redundancy payments receive favourable tax treatment under ATO rules – but only up to a limit.

The tax-free limit is made up of two parts: a base amount, plus an additional amount for each completed year of service. For the 2025-26 financial year those figures are:

• Base amount: $13,100
• Service amount: $6,552 per completed year of service

So an employee with 5 years of service would have a tax-free threshold of $13,100 + (5 × $6,552) = $45,860.

Any amount above that threshold is treated as an Employment Termination Payment (ETP) and taxed at a concessional rate – not the employee’s full marginal rate. Anything above the ETP cap is taxed at the top marginal rate.

These thresholds are indexed annually, so always check the ATO’s current figures before processing final pay. The tax treatment also needs to be correctly identified on the employee’s payment summary – your payroll provider or accountant should confirm this before you process.

Step 7: Document everything correctly

To meet your Fair Work obligations and protect both parties:

• give written notice of termination, clearly specifying redundancy as the reason
• provide a final pay breakdown showing redundancy pay, notice payment and leave payouts separately
• issue a separation certificate if requested (needed for Centrelink claims)
• keep records of consultation meetings and the genuine redundancy process

Payroll compliance is one of those areas where small errors quietly compound into bigger problems – if you’re not across the compliance tasks that commonly catch Australian founders off guard, it’s worth knowing before a redundancy process surfaces something bigger. Getting the documentation right from the start protects you if anything is disputed later.

Quick checklist before you process final pay

✅ Is the role genuinely redundant – not being filled by anyone else?
✅ Has the employee worked 12 or more months continuously?
✅ Do you have 15 or more employees?
✅ Have you checked their award or enterprise agreement?
✅ Have you calculated notice pay and leave payouts separately?
✅ Is the redundancy payment structured correctly for tax purposes?
✅ Is the tax treatment correctly identified for the redundancy payment?
✅ Have you checked the current ATO tax-free threshold for this financial year?

Need help getting your redundancy calculations right?

Redundancy calculations are straightforward in theory, but the combination of awards, state-based leave laws, and tax treatment can trip up even experienced operators. At Standard Ledger, we help startup founders and finance teams handle payroll compliance accurately – no guesswork, no Fair Work headaches.