Australia NES Redundancy Pay: What You're Entitled To

What Is the National Employment Standards (NES)?

The NES is a set of 11 minimum employment entitlements that apply to all employees in the national workplace relations system, which covers the majority of Australian workplaces. The NES is established under the Fair Work Act 2009 and cannot be overridden by awards, agreements, or contracts — although awards and agreements can provide more generous entitlements.

Redundancy pay is one of the 11 NES entitlements. It applies when an employee's job is made redundant, meaning the employer no longer needs the job to be done by anyone, or the employer becomes insolvent or bankrupt.

Eligibility for NES Redundancy Pay

To be entitled to NES redundancy pay, an employee must meet the following criteria:

• Coverage: The employee must be covered by the national workplace relations system (most private-sector employees are covered).
• Continuous service: The employee must have at least 12 months of continuous service with the employer.
• Genuine redundancy: The termination must be a genuine redundancy, meaning the employer no longer needs the job done by anyone, and the employer has complied with any consultation obligations in the applicable award or agreement.
• Not a small business: The employer must not be a "small business employer" (defined as an employer with fewer than 15 employees).

Small Business Exemption

Small business employers (those with fewer than 15 employees, including casual employees employed on a regular and systematic basis) are not required to pay redundancy pay under the NES. However, they must still provide notice of termination as required by the NES. The headcount of 15 includes all employees of the employer and any associated entities.

NES Redundancy Pay Scale

The NES redundancy pay entitlement is based on a tiered scale tied to the employee's period of continuous service. The pay is calculated as a number of weeks of the employee's "base rate of pay" (the rate paid for ordinary hours of work, excluding overtime, penalties, allowances, and loadings):

Note that the entitlement actually decreases from 16 weeks to 12 weeks after 10 years of service. This is because employees with 10+ years of service are also entitled to long service leave, and the NES redundancy scale accounts for this overlap.

Calculating Your Redundancy Pay

Redundancy pay is calculated using the employee's base rate of pay for their ordinary hours of work. Here is a step-by-step calculation:

1. Determine the base rate of pay: This is the employee's regular hourly or weekly rate, excluding overtime, penalty rates, allowances, and discretionary bonuses. For salaried employees, divide the annual salary by 52 to get the weekly rate.
2. Identify the applicable redundancy pay period: Use the table above to find the number of weeks based on continuous service.
3. Calculate: Multiply the weekly base rate by the number of weeks.

Example Calculation

An employee with 6.5 years of continuous service earning $1,500 per week (base rate) would be entitled to:

$1,500 × 11 weeks = $16,500

In addition to redundancy pay, the employee would also be entitled to notice of termination (or pay in lieu of notice) and any accrued entitlements such as annual leave and long service leave.

Notice of Termination vs. Redundancy Pay

It is important to distinguish between notice of termination and redundancy pay, as employees are entitled to both:

Notice can be given as working notice or as pay in lieu of notice. Employees over 45 years old with at least 2 years of service are entitled to an additional 1 week of notice.

Redundancy Pay and Awards/Agreements

While the NES sets minimum redundancy pay entitlements, modern awards and enterprise agreements can provide more generous redundancy terms. Some awards include additional redundancy provisions, such as:

• Higher pay scales than the NES minimum
• Severance pay for small business employees (in some awards)
• Additional payments for employees with very long service
• Job search entitlements (e.g., paid time off to attend job interviews)

Employees should check their applicable award or agreement to see if they are entitled to more than the NES minimum.

Genuine Redundancy Requirements

For an employee to be entitled to redundancy pay, the redundancy must be "genuine." Under the Fair Work Act, a redundancy is genuine if:

1. The employer no longer requires the job to be done by anyone, unless the redundancy is due to the ordinary and customary turnover of labour.
2. The employer has complied with any obligation to consult about the redundancy under a modern award or enterprise agreement.
3. It would not have been reasonable in all the circumstances for the person to be redeployed within the employer's enterprise or an associated entity.

If an employer fails to meet these requirements, the termination may not be a genuine redundancy, and the employee may have grounds for an unfair dismissal claim.

Fair Work Commission Reduction Applications

In certain circumstances, employers can apply to the Fair Work Commission (FWC) to reduce the amount of redundancy pay if the employer:

• Finds other acceptable employment for the employee
• Cannot afford the full redundancy pay amount

The FWC will consider factors such as the employee's prospects of alternative employment, the financial circumstances of the employer, and whether the employee has received any other benefits. Employees have the right to be heard in these proceedings.

Tax Treatment of Redundancy Pay in Australia

Genuine redundancy payments in Australia receive favorable tax treatment. The payment is split into two components for tax purposes:

• Genuine redundancy component: This is the amount by which the redundancy payment exceeds what the employee would have received as an employment termination payment (ETP) for voluntary resignation. This component is tax-free up to a cap (indexed annually, approximately $12,880 plus $6,440 for each completed year of service as of 2025-26).
• ETP component: The remainder is taxed as an ETP, with a concessional tax rate of 32% (including Medicare levy) for amounts under the ETP cap ($230,000 for 2025-26), and the top marginal rate above the cap.

This tax treatment means that genuine redundancy payments are generally taxed more favorably than regular salary, providing a significant benefit to redundant employees.