How Much Does Redundancy Cost an Employer in Australia? (2026)

Redundancy costs an Australian employer a minimum of one week's pay per year of service (capped at the maximum redundancy amount under the National Employment Standards), plus the employee's notice period — either worked out or paid in lieu. For a full-time employee on $80,000 a year with eight years of service, that is roughly $18,000 in redundancy pay alone, before any notice-in-lieu or accrued leave payout. The exact figure turns on service length, base rate of pay, employer size, and whether the employee is covered by a modern award or enterprise agreement that sets higher minimums.

The two components every employer must pay

Redundancy pay under the Fair Work Act 2009 has two distinct obligations that are easy to confuse.

Redundancy pay itself comes from section 119 of the Fair Work Act. The entitlement accrues from the first day of employment and applies to any employee who has completed at least one year of continuous service. Small business employers — those with fewer than 15 employees at the time of dismissal — are exempt from this obligation entirely under section 121(2).

Notice of termination is a separate requirement under section 117. The employer must give written notice of a specified minimum period, or pay out the equivalent in lieu. Both obligations run side by side; paying notice in lieu does not reduce redundancy pay.

The section 119 table: what the NES requires

The National Employment Standards set the floor. Under section 119, the scale runs as follows:

| Years of continuous service | Redundancy pay (weeks of base rate) | |-----------------------------|--------------------------------------| | 1 year and under 2 years | 4 weeks | | 2 years and under 3 years | 6 weeks | | 3 years and under 4 years | 7 weeks | | 4 years and under 5 years | 8 weeks | | 5 years and under 6 years | 10 weeks | | 6 years and under 7 years | 11 weeks | | 7 years and under 8 years | 13 weeks | | 8 years and under 9 years | 14 weeks | | 9 years and under 10 years | 16 weeks | | 10 years or more | 12 weeks |

The drop at ten years is not a drafting error. The legislature reduced the entitlement at that point deliberately — an employee with a decade of service is assumed to have had greater opportunity to accumulate superannuation and other savings.

"Base rate of pay" for this calculation means ordinary time earnings, excluding penalty rates, overtime, allowances, and most bonuses. An employee paid $1,600 a week in base wages who also earns $200 per week in overtime does not have that overtime included.

Notice periods under section 117

Notice entitlements under section 117 scale with service as follows:

• Under 1 year: 1 week
• 1 year and under 3 years: 2 weeks
• 3 years and under 5 years: 3 weeks
• 5 years or more: 4 weeks

Employees over 45 years of age with at least two years of continuous service receive one additional week on top of these figures.

An employer who pays in lieu of notice must pay the full base rate for the notice period plus any separately-payable incentive amounts that ordinarily would have been received.

Accrued annual leave: a cost employers overlook

Annual leave accrued and not taken must be paid out on termination regardless of the reason for dismissal. Under section 90 of the Fair Work Act, the payment is calculated at the employee's ordinary rate of pay. An employee with six weeks of accrued annual leave on a base rate of $1,500 per week adds $9,000 to the termination bill — an amount that sits entirely outside the redundancy and notice calculations.

Long service leave obligations sit on top of this again. Most state and territory long service leave legislation — including the Long Service Leave Act 1955 (NSW), the Long Service Leave Act 2018 (Vic), and the Long Service Leave Act 1987 (SA) — allows pro-rata payment after a qualifying period of seven or ten years depending on jurisdiction.

Worked example: eight-year employee in New South Wales

Take a 47-year-old warehouse supervisor in Sydney earning $78,000 base salary, employed for 8 years and 4 months:

• Redundancy pay: 14 weeks × $1,500/week (base) = $21,000
• Notice: 4 weeks (5+ years service) + 1 week (over 45 with 2+ years) = 5 weeks × $1,500 = $7,500
• Accrued annual leave: say 3.2 weeks = $4,800
• Long service leave (NSW): 8.33 years qualifies for pro-rata; at $1,500/week, approximately $6,240

Total minimum liability in this scenario: approximately $39,540 before superannuation on any of the above components that attract it.

Superannuation guarantee (currently 12% under the Superannuation Guarantee (Administration) Act 1992, following the increase effective 1 July 2025) applies to ordinary time earnings during the notice period where the employee works it out. The ATO's position is that payment in lieu of notice also attracts SGC if it is not a genuine employment termination payment — a nuance worth confirming with an accountant.

Reduction applications to the Fair Work Commission

An employer may apply to the Fair Work Commission under section 120 to reduce the redundancy pay amount where it has obtained other acceptable employment for the employee, or where the employer genuinely cannot afford the full payment. The Commission has discretion to reduce the NES entitlement to nil in exceptional circumstances. Applications are not automatic — the employer must lodge the request before the termination date in most cases.

Award and enterprise agreement minimums may be higher

The NES sets a floor, not a ceiling. Some modern awards and enterprise agreements contain redundancy provisions more generous than section 119. The Manufacturing and Associated Industries and Occupations Award 2020, for example, includes provisions for additional redundancy payments after long periods of service. Before calculating a payout, employers should check any applicable award using the Fair Work Commission's Award Finder or review the enterprise agreement that covers the employee.

Documentation: what to issue and when

A legally sound redundancy process involves more paperwork than many employers expect. The employer needs to consult with the affected employee (and any applicable union) before the decision is finalised, provide written notice of the termination date, and issue a separation certificate. In practice, most employers also issue a formal redundancy letter setting out the payment breakdown.

A clear and dated free redundancy letter template for Australia reduces the risk of a dispute about what was communicated and when — particularly relevant if the employee later lodges an unfair dismissal application claiming the redundancy was not genuine.

Genuine redundancy: the protection employers need

A dismissal is only protected from an unfair dismissal claim under section 389 of the Fair Work Act if it satisfies all three conditions: the employer no longer required the job to be done (or required it to be done by a different number of people), the employer complied with any applicable consultation obligations, and the employer considered redeployment within the business or associated entities. Paying the correct redundancy amount does not by itself make the dismissal a genuine redundancy — the process matters as much as the money.

What small businesses need to know

Employers with fewer than 15 employees are exempt from paying section 119 redundancy pay. The count is of employees at the time the particular employee's employment ends, not a historical headcount. A business that grew beyond 15 employees must pay the full NES redundancy entitlement even if it was smaller when the employee was hired.

Small business employers are still required to pay correct notice, accrued leave, and any amounts owed under a modern award or enterprise agreement that covers their industry.

Common mistakes that increase the cost

The most expensive mistakes in Australian redundancy cases are procedural, not arithmetical. Selecting an employee for redundancy without any genuine consultation, failing to consider redeployment into a clearly available role, or restructuring a role and then promptly filling it with a new hire all expose the employer to unfair dismissal liability. The Fair Work Commission can order reinstatement or compensation up to 26 weeks' pay for employees in the general protections or unfair dismissal streams — an amount that dwarfs the cost of getting the consultation process right at the start.

forms-legal.com maintains free templates for Australian employment documents, including redundancy letters that reflect the current NES requirements and can be adapted to specific award coverage.

Redundancy is one of the more predictable employment costs a business will face. Running the numbers before a restructure — not after — gives employers the budget clarity to make defensible decisions.