Can I reduce redundancy pay if I can't afford it?

If the entitlement comes from the NES, you can apply to the Fair Work Commission to reduce it because you can't pay or you've found the employee other acceptable employment. This isn't available for award or enterprise agreement redundancy pay.

How is redundancy pay taxed?

A genuine redundancy payment is tax-free up to a limit based on years of service, which the ATO indexes each 1 July. Amounts above the limit are taxed as an employment termination payment.

Do I have to pay redundancy?

Updated 15 October 2026 · 3 min read · Australian law

Short answer

Usually not if you have fewer than 15 employees, counting associated entities and regular casuals. Employers with 15 or more must pay 4 to 16 weeks' base pay to eligible employees with at least a year of continuous service. Either way, the redundancy must be genuine and you must still give notice.

The small business exemption

Under the National Employment Standards (NES), a small business employer doesn't have to pay redundancy pay. You are a small business if you employ fewer than 15 people at the time of the redundancy. Count:

the employees being made redundant
all other full-time and part-time employees
casuals employed on a regular and systematic basis
employees of associated entities, including overseas ones

There are exceptions. Some awards contain industry-specific redundancy schemes that cover small businesses, so check yours. A business that becomes small by downsizing while bankrupt or in liquidation may also still have to pay.

How much redundancy pay is

For employers with 15 or more employees, NES redundancy pay depends on continuous service:

at least 1 year but less than 2: 4 weeks
2 to less than 3 years: 6 weeks
3 to less than 4 years: 7 weeks
4 to less than 5 years: 8 weeks
5 to less than 6 years: 10 weeks
6 to less than 7 years: 11 weeks
7 to less than 8 years: 13 weeks
8 to less than 9 years: 14 weeks
9 to less than 10 years: 16 weeks
10 years or more: 12 weeks

It's paid at the employee's base rate for ordinary hours, without loadings, allowances, overtime or bonuses. Casual service doesn't count. Casuals, apprentices, employees on fixed-term, task or seasonal contracts and anyone dismissed for serious misconduct aren't entitled. Notice (or pay in lieu) and unused annual leave are paid on top.

If you ask an employee to relocate and it is reasonable for them to refuse, they may be entitled to redundancy pay.

What makes a redundancy genuine

A redundancy is genuine only if:

you no longer need the job done by anyone because of changes in the business, such as falling sales, new technology or a restructure
you followed any consultation requirements in the applicable award or enterprise agreement, and
it wouldn't have been reasonable to redeploy the employee elsewhere in your business or an associated entity

If you hire someone else to do the same job, it isn't a genuine redundancy. A redundancy that isn't genuine can lead to an unfair dismissal claim, and that risk applies to small businesses too.

Consulting before you act

All awards and enterprise agreements have a consultation clause for major workplace changes, which can include redundancies. Once you've decided on the change, you must as soon as possible:

tell affected employees and their representatives
give them relevant information in writing, including the expected effects
discuss the change and ways to reduce its impact
consider their ideas and suggestions

If you are considering making 15 or more employees redundant, you must also notify Services Australia in writing, as soon as possible and before the dismissals happen, setting out the reasons, the number and categories of employees affected, and the timing.

Use the Fair Work Ombudsman's Notice and Redundancy Calculator to check figures under your award.

Sources

General information about Australian law, not legal advice. Your situation may change the answer. Ask Taylor about the details, or get a Sprintlaw lawyer to advise you.