Redundancy entitlements under the National Employment Standards

The NES table

The scale in section 119 of the Fair Work Act rises by one or two weeks a year to a peak of 16 weeks between nine and ten years, then drops to 12 weeks at ten years or more. The drop is deliberate: when the NES were written in 2009, the legislators assumed that employees with ten years of service would receive long service leave on termination, which is true in every state at ten years. Employees who are a few months short of an anniversary lose a whole step, because only completed years count; someone with four years and eleven months receives eight weeks, not ten.

Who is entitled

Redundancy pay under the NES is available to national system employees whose employment is terminated at the employer’s initiative because the employer no longer requires the job to be done by anyone, or because of the insolvency or bankruptcy of the employer. The employee must have at least twelve months of continuous service with the employer, and the employer must not be a small business employer. Continuous service is unbroken service with the same employer or a related entity, including periods of paid leave, community service leave and, since 2021, periods of regular and systematic casual employment that preceded a conversion to permanent employment. Unpaid leave, other than unpaid parental leave, generally does not count towards the period of service but does not break continuity.

Base rate of pay

Redundancy pay is calculated on the base rate for ordinary hours: no overtime, penalty rates, allowances, loadings or bonuses. Part-time employees use their part-time base pay. If your hours changed during your service, the current base rate applies to all the weeks.

The base rate is the rate for the ordinary hours you work, excluding incentive-based payments, bonuses, loadings, monetary allowances, overtime and penalty rates. For a salaried employee it is the annual salary divided by 52, or by 52.18 in some agreements; for an hourly employee it is the hourly rate multiplied by the ordinary weekly hours. Salary sacrifice arrangements do not reduce the base rate, because the base rate is measured before the sacrifice. Where an award or enterprise agreement contains its own definition of the rate for redundancy purposes, for example an average of the last twelve months for employees whose hours fluctuate, that definition applies if it is more favourable.

Consultation and alternative employment

Awards and agreements require the employer to consult before deciding, and to consider redeployment. If the employer obtains other acceptable employment for you, it can ask the Fair Work Commission to reduce the redundancy pay. A transfer of business with recognised service also cancels redundancy pay.

Consultation is not a formality. The model consultation clause in every modern award requires the employer to notify affected employees as soon as a definite decision has been made, to discuss the changes, their likely effects and measures to avert or mitigate them, and to consider matters raised by the employees. A redundancy carried out without consultation is not a genuine redundancy for the purposes of the unfair dismissal provisions, even if the job really has disappeared, and the Fair Work Commission can order compensation of up to six months’ pay. Redeployment is the second limb: if it would have been reasonable to redeploy the employee within the employer’s enterprise or an associated entity, the redundancy is not genuine. Employers are expected to look at vacancies across the group, including roles at a lower level that the employee could reasonably perform.

Reduction of redundancy pay

Section 120 allows an employer to apply to the Fair Work Commission to reduce redundancy pay, possibly to nil, in two situations: where the employer has obtained other acceptable employment for the employee, or where the employer cannot pay. “Obtained” means the employer was a strong moving force in securing the new job, not merely that the employee found one; “acceptable” is measured against pay, hours, location, seniority and security. Applications on the ground of incapacity to pay succeed rarely and usually only for very small employers on the verge of insolvency. Where a business is sold and the new owner recognises the employee’s prior service, or offers employment on terms substantially similar and no less favourable, the old employer is not liable for redundancy pay, and the employee who refuses the offer loses it.

Exclusions

• Less than 12 months of continuous service.
• Casual employees; fixed-term or seasonal contracts ending as agreed; apprentices.
• Small business employers (fewer than 15 employees), unless the award has an industry-specific scheme.
• Dismissal for serious misconduct.

Two further groups are excluded by section 123: employees engaged for a specified task, and daily hire employees in the building, construction and meat industries, who instead have award-based schemes. Trainees under a training arrangement are excluded while the arrangement lasts. Employees who resign, even in response to a redundancy announcement, are not entitled unless the resignation is a forced one that the law treats as a dismissal.

Awards and agreements that pay more

The NES is a floor. Many modern awards and most enterprise agreements in manufacturing, mining, banking, universities and the public sector provide more generous scales, commonly two, three or four weeks per year of service with no cap, or a minimum of several weeks regardless of service. Some awards, such as the Building and Construction General On-site Award and the Manufacturing Award for some employers, contain industry-specific redundancy schemes that also apply to small businesses. Where two instruments apply, the employee receives the higher amount, not both. Check the redundancy clause of your award on the Fair Work Ombudsman website, and the terms of any enterprise agreement, before accepting a figure calculated on the NES alone.

Voluntary redundancy

A voluntary redundancy occurs when the employer invites expressions of interest and the employee volunteers to have their position made redundant. It is still a termination at the employer’s initiative, so the NES entitlement applies, and it is a genuine redundancy for tax purposes as long as the position is actually abolished. Employers frequently offer an incentive above the NES to attract volunteers; that incentive is part of the genuine redundancy payment and shares the tax-free limit. An employee who volunteers cannot later claim unfair dismissal.

What to do if the payment is wrong

1. Ask the employer in writing for a breakdown of each component and the instrument used.
2. Compare with the NES table above and with your award or agreement clause; use the redundancy pay calculator for the NES figure.
3. If the job still exists or consultation was skipped, consider an unfair dismissal application within 21 days of the dismissal taking effect.
4. For an underpayment, contact the Fair Work Ombudsman or lodge a small claims application in the Federal Circuit and Family Court, which has a six-year limitation period.