Redundancy & Final Pay Calculation Guide Australia (2026–27)

Navigating a job loss or restructuring is challenging, but knowing your statutory workplace rights and tax concessions ensures you receive every dollar you are owed. In Australia, redundancy payouts are governed by the National Employment Standards (NES) and enjoy substantial tax-free redundancy thresholds set annually by the Australian Taxation Office (ATO).

This guide explains what constitutes a genuine redundancy, statutory severance schedules, notice periods, how final pay is calculated, and how to minimize tax on lump-sum termination payouts.

1. What Is Genuine Redundancy?

Under Australian employment law, a genuine redundancy occurs when:

1. The employer no longer requires the employee’s job to be performed by anyone due to operational changes (e.g. business downturn, technology automation, corporate restructuring, or site closure).
2. The employer has complied with any consultation obligations outlined in the relevant Modern Award or Enterprise Agreement.
3. It was not reasonable in all the circumstances for the employee to be redeployed within the employer’s enterprise or an associated entity.

Note: Dismissal due to performance issues, misconduct, or normal resignation does not qualify for redundancy pay or tax-free concessions.

2. Statutory NES Redundancy Pay Scale

Under Section 119 of the Fair Work Act 2009, permanent employees with at least 1 year of continuous service are entitled to statutory redundancy severance pay:

*Note: Under the NES, the entitlement drops from 16 to 12 weeks at 10+ years due to eligibility for Long Service Leave under state laws. However, many enterprise agreements and employment contracts provide higher severance amounts.

Small Business Exemption

Employers with fewer than 15 employees across the business are generally exempt from paying statutory NES redundancy pay, unless specified otherwise in an applicable Modern Award or contract.

3. Statutory Notice Periods or Pay in Lieu

In addition to redundancy severance, employers must give minimum written notice or provide Pay in Lieu of Notice:

• 1 year or less service: 1 week notice
• 1 year to 3 years: 2 weeks notice
• 3 years to 5 years: 3 weeks notice
• 5 years or more: 4 weeks notice
• Employees aged 45+ with 2+ years service: An additional 1 week notice added to the scale.

4. ATO Tax-Free Redundancy Limits (2026–27)

Genuine redundancy payments receive generous tax exemptions. The ATO sets indexed tax-free base and service year amounts for the 2026–27 financial year:

$\text{Tax-Free Limit} = \text{Base Amount (~}\$12,524\text{)} + (\text{Completed Years of Service} \times \text{Service Amount (~}\$6,264\text{)})$

Example Calculation

Suppose Liam has worked for an engineering firm for 6 full completed years and receives a $60,000 redundancy severance:

1. Base Tax-Free Amount: $12,524
2. Service Year Component: 6 \times $6,264 = $37,584
3. Total Tax-Free Threshold: $12,524 + $37,584 = $50,108
4. Tax Treatment:
   • $50,108 is paid completely tax-free (no income tax or Medicare levy).
   • The remaining $9,892 is treated as an Employment Termination Payment (ETP) and taxed at a concessional maximum rate (typically 17% or 32% depending on age).

5. What Makes Up Your Total Final Pay?

Your final termination package typically comprises:

1. Outstanding unpaid wages up to the termination date.
2. Pay in lieu of notice (if not worked).
3. Accrued, untaken annual leave + 17.5% leave loading (where applicable).
4. Accrued pro-rata Long Service Leave (if qualifying period met).
5. Genuine redundancy severance payment.

6. Calculate Your Payout Accurately

Estimate your redundancy payout, notice period entitlements, and tax breakdown using our free tools:

• Redundancy Pay Calculator — Calculate statutory severance and ATO tax-free threshold.
• Notice Period Calculator — Check required NES notice weeks based on age and service length.
• Termination Pay Calculator — Model total gross and net final payout.