No one enjoys going through a redundancy process – not you, not your employee. But when it happens, you need to make sure it’s done fairly and correctly. That means following the Fair Work Act 2009 and calculating redundancy pay properly.

Let’s walk through what redundancy pay actually is, when it applies, and how to calculate it – step by step.

What redundancy pay is (and isn’t)

Redundancy pay – or severance pay – is a payment to an employee whose job is no longer required to be done by anyone. It’s not about poor performance or misconduct. It’s about the role itself disappearing due to things like:

• business restructure
• new technology replacing the role
• downsizing or closure
• operational changes that eliminate the need for certain positions.

The payment compensates the employee for losing ongoing employment through no fault of their own. It’s a legal entitlement under the National Employment Standards, not a discretionary bonus.

Who gets redundancy pay

Under the National Employment Standards (NES), redundancy pay applies to most full-time and part-time employees who’ve worked continuously for at least 12 months.

No redundancy pay is required if:

• the employee has worked for less than 12 months
• they’re a casual employee
• they’re employed by a small business (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 working with no loss of service
• the employee is a trainee or apprentice and their training contract ends at its scheduled completion date.

It’s worth noting that casual employees don’t generally count toward the 15-employee threshold for the small business exemption, unless they’re working regular and systematic hours.

How to calculate redundancy pay

The amount of redundancy pay depends on the employee’s continuous service with your business. Redundancy pay is based on the employee’s base weekly pay – that’s their ordinary time earnings, excluding overtime, bonuses, allowances, or penalty rates.

If your employee is on an annual salary, divide it by 52 to get their base weekly pay.

Fair Work’s scale is:

*After 10 years, redundancy pay drops to 12 weeks because long service leave generally starts accruing around that point.

To calculate the total, multiply the employee’s base weekly pay (not including overtime, bonuses, or allowances) by the number of weeks above.

Example:

An employee on $78,000 per year who’s worked for 5 years:

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

Don’t forget: notice period and other entitlements

Redundancy pay is separate from the notice period. You still need to give notice (or pay in lieu) according to the NES or their award/contract. The notice period varies based on length of service – typically ranging from 1 to 4 weeks for employees under 45, with an additional week for those over 45.

Redundancy pay comes on top of that notice payment.

You’ll also need to pay out:

• any unused annual leave (always required)
• long service leave, depending on their tenure and your state’s legislation
• any pro-rata leave entitlements they’re eligible for.

Watch out for modern awards

Some modern awards and enterprise agreements provide for redundancy entitlements that exceed the NES minimums. Always check the relevant award that covers your employee’s role – you may need to pay more than the standard scale above.

What to document

When ending employment due to redundancy, make sure you:

• give written notice of termination
• clearly specify redundancy as the reason for termination
• include final pay details showing the breakdown: redundancy pay, notice period payment, and leave payouts
• issue a separation certificate if requested (required for Centrelink claims)
• keep records of consultation meetings and the genuine redundancy process.

Proper documentation protects both you and your employee, and ensures you’re meeting your Fair Work obligations.

The takeaway

Redundancy is never fun, but it’s straightforward once you know the numbers and follow the process correctly.

Check:

✅ Is the role genuinely redundant?

✅ Has the employee worked 12+ months? 

✅ Are you a small business (under 15 staff)? 

✅ Does their award or contract require more than the NES minimum?

Then, use Fair Work’s table to calculate the right payout, add notice and leave entitlements, and document everything properly.

Since employee separation can involve tricky legal and tax considerations, you may also need to consult with an employment lawyer – let us know if you need an intro.

Need help getting your redundancy calculations right?

At Standard Ledger, we help startup founders and finance teams handle payroll compliance cleanly – no guesswork, no last-minute surprises, no Fair Work headaches. Whether you’re navigating your first redundancy or restructuring your team, we’ll make sure your calculations are accurate and your process is watertight.