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Need to restructure your business? Here’s a complete employer redundancy guide to manage restructuring without legal risks.
Navigating redundancy can be complex. If you get it wrong, you could face penalties up to $76,000. That’s why we’ve designed our step-by-step compliance to guide you in meeting all legal requirements, reducing the risk of costly unfair dismissal claims.
In this guide, you will access powerful tools that calculate exact redundancy payments to keep your finances in check. You can also download fully compliant templates to streamline your process and protect your business.
Don’t let redundancy decisions expose you to legal challenges. Empower your restructure with confidence and compliance today.
Table of Contents
Understanding redundancy and the factors that lead to it
Redundancy occurs when an employee’s position is no longer required due to factors such as business restructuring, downsizing, or technological advancements.
Redundancy can be painful for both the employer and the employee, but it is often required in the modern workplace.
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Genuine redundancy
A genuine redundancy is when an employee’s job ceases to exist, and the employer has complied with certain legal requirements. To be considered genuine, the redundancy must meet specific criteria, including the absence of a replacement for the position and a reasonable attempt to redeploy the employee within the organisation.
Based on the Fair Work Act 2009, Section 389, genuine redundancy is defined as follows:
- The person’s employer no longer requires the person’s job to be performed by anyone because of changes in the operational requirements of the employer’s enterprise; and
- The employer has complied with any obligation in a modern award or enterprise agreement that applied to the employment to consult about the redundancy.
Redundancy can only be genuine if the employer no longer requires the job to be filled.
Voluntary redundancy
Voluntary redundancy allows employees to control the terms of their departure from a company. When employers offer financial compensation in exchange for employees agreeing to terminate their employment, it creates a situation of voluntary redundancy.
This option is typically chosen by employers who prefer not to make the difficult decision of selecting specific employees for redundancy.
Often, employees who have served for more than ten years or are senior members of the organisation will be the first to receive voluntary redundancy offers.
Voluntary redundancy can be particularly attractive for employees nearing retirement or seeking a career change. It provides an opportunity to transition into the next phase of life or explore new avenues without the pressures of searching for a new job while still employed.
Hybrid redundancy
Hybrid redundancy presents an alternative approach that combines elements of voluntary redundancy with traditional redundancy methods, aiming to achieve optimal outcomes for both employers and employees.
While this approach may entail certain trade-offs in terms of associated benefits, it also helps mitigate risks.
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Redundancy laws in Australia
According to the National Employment Standards (NES), employers must provide employees a minimum notice period or payment in lieu of notice before terminating their employment.
All employees who fall under the jurisdiction of Commonwealth workplace laws have the right to receive redundancy or severance payments, with a maximum limit of 16 weeks’ pay under the NES, if the following conditions are met:
- The employee has completed a minimum of 12 months of continuous service.
- The employer has a workforce of 15 or more employees.
You must follow the five key stages of redundancy for compliance. These are:
- Plan and assess business needs
- Consult with employees and representatives
- Select employees based on objective criteria
- Notify and issue redundancy notices
- Finalise redundancy with payments, documentation, and support
Failure to follow these steps can result in significant penalties. If you are facing a redundancy process, consulting a lawyer early on may be the best course of action, as it can protect your business from the outset.
Creating your redundancy framework: Policies and legal documents
Every business should establish a clear redundancy framework from the very start. Having a written redundancy policy ensures preparedness for operational changes, providing a consistent approach when redundancies become necessary.
Our redundancy policy template can help you get started. Remember that your redundancy policy should clearly outline the following:
- Rationale behind redundancies
- The process for selecting affected employees based on defensible criteria
- Consultation requirements
- Notice periods
- Redundancy pay entitlements
Include steps for exploring redeployment options and managing employee transition support.
The benefits of a well-defined redundancy policy include consistent decision-making, which protects the business from allegations of unfair or discriminatory treatment.
Next, let’s look at the redundancy process for employers.
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1. Plan and assess business needs
Begin by thoroughly evaluating your business operations and financial situation to determine if redundancies are necessary. Develop a detailed business case that documents the rationale for downsizing, including cost analyses and organisational charts identifying positions that will be affected.
Review applicable awards, enterprise agreements, and employment contracts to understand legal obligations and potential costs. Establish objective and fair selection criteria for identifying roles or employees at risk, avoiding discriminatory factors.
This careful planning sets a sound foundation for complying with employment laws and minimising risks.
2. Consult with employees and representatives
Once redundancies are being considered, engage in a transparent consultation process with affected employees and, where relevant, their representatives or unions.
During the consultation meeting, allow the employee to express concerns, provide feedback, and suggest alternatives to redundancy. Alternatives include reducing work hours or utilising accrued leave to mitigate the impact of a business downturn.
The general consultation process entails the following:
- Notifying employees who may be affected by the proposed changes.
- Providing employees with information about the changes and their anticipated impact.
- Discussing steps taken to minimise negative effects on employees and avoid redundancy where possible.
- Considering feedback from employees regarding the proposed changes.
If re-employment is not feasible, communicate this to the employee while genuinely considering their input. Failure to meet these requirements may expose the employer to claims of unfair dismissal.
3. Select employees based on qualifying criteria
When selecting employees for redundancy, it is vital to use objective, fair, and transparent criteria that directly relate to the business’s operational needs. Selection should be based on measurable factors. These can include:
- Relevant skills
- Qualifications
- Performance records
- Experience
- Attendance
Avoid subjective traits, such as personality or “fit.” You must apply the criteria consistently and without discrimination on the basis of unlawful grounds, such as age, gender, or disability.
Clear documentation of the selection process and rationale helps protect against unfair dismissal claims and supports the legitimacy of the redundancy.
4. Correctly notify employees
Once selected, follow up with a redundancy notification letter outlining the redundancy proposal. Make sure this complies fully with all Fair Work requirements.
This notice should be professional yet empathetic, clearly outlining the employee’s entitlements, including notice periods, redundancy pay, and accrued leave. Also include the next steps, such as the timing of a second consultation meeting and the opportunity for the employee to have a support person present.
It is critical to provide the notice within the mandated timeframes and with transparent communication. Incorrect or inadequate notice can void the redundancy process, exposing the business to legal risks, including unfair dismissal claims.
5. Finalise redundancy safely: The importance of a deed of release
When finalising a redundancy, a Deed of Release is an essential tool for protecting your business. This legally binding document prevents future claims by securing the employee’s agreement to release the employer from legal actions related to their employment and termination. It also safeguards confidential information and often includes restraint clauses to protect business interests post-employment.
Investing in a Deed of Release is a small cost compared to the potential risk of claims exceeding $50,000 or more. Avoid unfair dismissal redundancy claims and protect your business today.
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Calculating redundancy obligations
According to NES, employees (excluding casual employees) who have continuously served for more than one year are eligible for redundancy pay.
The amount of payment they receive depends on the duration of their continuous service and their base pay rate. This also determines the minimum notice period before they are made redundant.
To calculate your employee’s redundancy payment, you can use the formula:
Base Rate of Pay x Redundancy Pay Period = Redundancy Pay.
The base rate of pay refers to the rate that is payable to your employee for their regular working hours. It does not include additional components such as incentive-based payments, bonuses, loadings, monetary allowances, or overtime and penalty rates.
It’s important to consider that continuous service only encompasses the period during which you have employed the worker. It does not include any instances of unauthorised absence, unpaid leave, or unpaid authorised absence.
Additionally, it’s worth noting that a modern award, enterprise agreement, employment contract, or workplace policy may provide for a higher redundancy pay compared to NES.
Summary table: Minimum notice period*
| Period of continuous service | Minimum notice period |
| 1 year or less | 1 week |
| More than 1 year – 3 years | 2 weeks |
| More than 3 years – 5 years | 3 weeks |
| More than 5 years | 4 weeks |
*As of November 2025
