Genuine Redundancy – Payout, Tax & Your Rights

A genuine redundancy happens when your employer no longer needs your specific job to be done by anyone because of operational changes. That is the first limb. The employer must also have followed the consultation requirements if you are covered by an award or enterprise agreement. If either of those conditions is not met, or if it would have been reasonable to redeploy you somewhere else in the business, the dismissal may not be a genuine redundancy. In that case you may have grounds for an unfair dismissal claim.

The distinction matters for two separate reasons. Legally, a genuine redundancy is a defence to an unfair dismissal claim under section 389 of the Fair Work Act 2009 (Cth). Financially, only a genuine redundancy gets the ATO tax-free treatment. For 2026-27 that is $13,598 plus $6,801 for every completed year of service, tax-free.

Australian Bureau of Statistics figures show 268,000 people were retrenched in the year to February 2025, an annual retrenchment rate of 1.9 per cent. That is up from 1.3 per cent two years earlier, which was the lowest rate recorded since the series began in 1972. Retrenchment now accounts for 12.5 per cent of everyone who left or lost a job, compared with 8 per cent in the year to February 2023. Redundancy is back.

What qualifies as a genuine redundancy?

A redundancy is only genuine if three things are true, the job itself has been abolished, the employer complied with any consultation obligations, and redeployment within the business or an associated entity was not reasonable.

“The job has been abolished” has a specific meaning. The test looks at the work, not the label. If your employer has removed your position from the org chart but the same duties are still being performed by someone else, possibly under a new title, the role has not genuinely disappeared.

The 3-point genuine redundancy diagnostic checklist

Work through each question and tick yes or no. Be honest about what you actually know versus what you have been told.

Check 1: Has the actual role disappeared?

• ☐  The duties I performed are no longer being done by anyone in the business
• ☐  No new person has been hired into a role that covers my former duties
• ☐  My duties have not simply been redistributed to colleagues alongside a new job title being advertised
• ☐  The business genuinely changed how it operates, for example a site closure, a restructure, automation, or a downturn in work

Check 2: Did the employer consult before the decision was finalised?

• ☐  I was told about the proposed change before the decision was locked in, not after
• ☐  I was given information in writing about the change and its likely effect on me
• ☐  I was given a real opportunity to respond and to suggest alternatives
• ☐  My employer genuinely considered what I raised
• ☐  If I am covered by a modern award or enterprise agreement, the specific consultation clause in that instrument was followed

Check 3: Did they look for other roles across the whole business?

• ☐  I was told what other vacancies existed at the time
• ☐  Roles at related or associated entities, including parent and sister companies, were considered
• ☐  I was considered for roles I could reasonably do with a short period of training
• ☐  I was not simply told “there is nothing available” without any evidence

How to read your answers

All boxes ticked. The redundancy is likely genuine. Your focus should shift to making sure the payout is calculated correctly and to negotiating whatever is negotiable.

Any box unticked in Check 1. This is the strongest ground. If the work still exists, the redundancy defence is difficult for an employer to sustain.

Any box unticked in Check 2. Consultation failures are the most common defect we see. That timing matters. An employer who consults after the decision is made has not consulted. Note that the consultation obligation under section 389 comes from an award or enterprise agreement, so if you are award-free and not covered by an agreement, this limb may not apply to you.

Any box unticked in Check 3. Redeployment is assessed on what was reasonable in all the circumstances, including at associated entities. Employers frequently overlook the associated entity part.

If your redundancy fails this test, it is a non-genuine redundancy. That does not automatically make the dismissal unfair, but it removes the employer’s redundancy defence and puts the fairness of the dismissal squarely in issue.

Immediate action items

1. Do not sign a deed of release yet. A deed usually extinguishes every claim you have, including claims you do not yet know about. Once signed, it is very hard to undo.
2. Request the redeployment analysis in writing. Ask what vacancies existed across the business and any associated entities at the date of your dismissal, and why you were not considered.
3. Ask for the consultation record. Request copies of any written notification, meeting notes and the applicable consultation clause.
4. Diarise day 21. Count 21 calendar days from the date your dismissal took effect. If you intend to challenge the dismissal, that is your lodgement deadline for an unfair dismissal or general protections application.
5. Preserve your documents now. Copy your contract, position description, payslips, performance reviews and relevant emails before your access is cut off.

How to calculate a genuine redundancy payout and the tax that applies

Your payout depends on your base rate of pay, your years of continuous service, and whichever is more generous out of the National Employment Standards, your modern award, your enterprise agreement or your contract.

Step 1: Calculate your base severance entitlement

The National Employment Standards set the minimum under section 119 of the Fair Work Act. Redundancy pay is calculated on your base rate for ordinary hours. It excludes overtime, penalties, bonuses, allowances and superannuation.

Period of continuous service	Redundancy pay
At least 1 year but less than 2 years	4 weeks
At least 2 years but less than 3 years	6 weeks
At least 3 years but less than 4 years	7 weeks
At least 4 years but less than 5 years	8 weeks
At least 5 years but less than 6 years	10 weeks
At least 6 years but less than 7 years	11 weeks
At least 7 years but less than 8 years	13 weeks
At least 8 years but less than 9 years	14 weeks
At least 9 years but less than 10 years	16 weeks
At least 10 years	12 weeks

Two points that catch people out. First, the entitlement drops from 16 weeks to 12 weeks once you pass ten years of service. That is not an error. The scale was set on the assumption that employees at ten years have long service leave to draw on. Second, employers with fewer than 15 employees are generally exempt from paying redundancy pay under the National Employment Standards, although an award or enterprise agreement may still require it.

Redundancy pay sits on top of your notice entitlement, not inside it. Under the National Employment Standards, notice runs from one week for under a year of service to four weeks for more than five years, with an extra week if you are 45 or over and have at least two years of service.

Your figures:

• Base weekly pay: $______
• Completed years of continuous service: ______
• Weeks of severance from the table above: ______
• Severance pay (weekly pay × weeks): $______
• Notice or payment in lieu: $______
• Accrued annual leave and leave loading: $______
• Long service leave, if you qualify under your state legislation: $______
• Total gross final payment: $______

Check this against your final pay entitlements before you accept the figure your employer has calculated.

Step 2: Apply the 2026-27 tax-free limit

For a genuine redundancy, part of the severance payment is entirely tax-free. The formula for the 2026-27 financial year is:

The base and service amounts are indexed by the ATO on 1 July each year, so check the current figures if your dismissal falls in a later year. For 2025-26 the figures were $13,100 plus $6,552.

Completed years of service	Tax-free limit (2026-27)
1 year	$20,399
3 years	$34,001
5 years	$47,603
8 years	$68,006
10 years	$81,608
15 years	$115,613

Only whole completed years count. Eleven months of service is zero years for this calculation.

Step 3: Work out the tax on the remainder

Anything above the tax-free limit becomes an employment termination payment, or ETP, and is taxed at a concessional flat rate rather than your marginal rate. For 2026-27:

• Below preservation age (60): 32 per cent, including the Medicare levy, up to the ETP cap of $270,000
• At or above preservation age (60) and below Age Pension age (67): 17 per cent, including the Medicare levy, up to the ETP cap
• Above the $270,000 ETP cap: 47 per cent, the top marginal rate including the Medicare levy

Worked example: a $50,000 payment with 5 years of service, aged 45

• Tax-free limit: $13,598 + (5 × $6,801) = $47,603
• Taxable ETP: $50,000 minus $47,603 = $2,397
• Tax at 32 per cent: approximately $767
• Net from the severance payment: approximately $49,233

Worked example: a $100,000 payment with 8 years of service, aged 45

• Tax-free limit: $13,598 + (8 × $6,801) = $68,006
• Taxable ETP: $100,000 minus $68,006 = $31,994
• Tax at 32 per cent: approximately $10,238
• Net from the severance payment: approximately $89,762

The same $100,000 payment, aged 61

• Taxable ETP is unchanged at $31,994
• Tax at 17 per cent: approximately $5,439
• Net from the severance payment: approximately $94,561

Reaching preservation age saves roughly $4,800 in that scenario. These figures cover the severance component only. Your unused leave payouts are taxed separately and are not included above.

Common mistakes

Treating the whole payout as tax-free. The tax-free limit applies to the genuine redundancy severance component. Unused annual leave and long service leave are taxed under a different schedule, generally at a flat 32 per cent when paid in connection with a genuine redundancy. Payment in lieu of notice is usually part of the ETP rather than the tax-free component.

Using gross pay instead of base pay. Redundancy pay under the National Employment Standards is calculated on your base rate for ordinary hours. If your employer has used a figure that includes commissions or allowances, that is generous rather than wrong, but if they have used base pay and you believed your award required otherwise, check the award.

Counting partial years. Both the severance scale and the tax-free calculation use completed years.

Assuming super is payable. Superannuation guarantee generally does not apply to redundancy pay or leave paid out on termination. It does apply to payment in lieu of notice.

Forgetting associated entity service. Service with a related company may count towards continuous service if there was a transfer of employment.

Age changes the answer twice

Two age thresholds operate independently and are easy to confuse.

Preservation age (60) determines your ETP withholding rate, either 17 per cent or 32 per cent. It is assessed on your age at the end of the financial year in which you receive the payment.

Age Pension age (67) determines whether the payment qualifies as a genuine redundancy at all. If you are Age Pension age or older on the day you are dismissed, the ATO treats the payment as a non-genuine redundancy, the tax-free limit does not apply, and the entire amount is taxed as an ETP. Before 1 July 2019 this cut-off was 65. It is now Age Pension age.

Is it better to take voluntary redundancy, resign or retire?

Taking a genuine voluntary redundancy is almost always financially better than resigning. Volunteering for a redundancy does not make it non-genuine. What matters is whether the employer abolished the role. Resign instead and you forfeit the severance payment and the tax-free limit entirely.

The exit strategy comparison matrix

Best for

Maximising cash in hand: voluntary redundancy. You receive severance, notice and leave, and the tax-free limit applies. None of that is available on resignation.

Preserving your legal position: involuntary redundancy. If you are made redundant against your wishes and the process was defective, your right to challenge it is intact. If you volunteered, an employer will argue you consented, although volunteering does not by itself extinguish a claim where the role was never genuinely redundant.

A planned exit near retirement: an early retirement scheme, but only where your employer has an ATO-approved scheme in place. Retiring of your own accord is not an early retirement scheme and attracts none of the concessional treatment.

The disadvantages of voluntary redundancy

Volunteering is not risk-free.

You lose bargaining power. Once you have signalled you want out, the employer has no reason to improve the offer. Negotiate first, volunteer second.

Income stops on the day you leave. If you do not have another role lined up, a payout that looked substantial can be consumed quickly, and Centrelink support may be delayed by the income maintenance period, which treats your payout as income across the weeks it notionally covers.

You may weaken a claim you did not know you had. If there was an underlying issue, for example a workplace complaint or a period of leave preceding the restructure, a redundancy that looks like a convenient exit may involve adverse action. Volunteering makes that harder to argue.

Selection is not always neutral. Where a pool of employees is affected, who is selected and why can itself be discriminatory or otherwise unlawful.

Services Australia sets the rules on waiting and preclusion periods, so check your position directly with them before you commit to a decision.

Can I negotiate a higher redundancy payout?

Yes. Redundancy payments above the statutory minimum are common, and the additional amount is often described as an ex gratia payment. Your bargaining power comes from two places: the value of a clean exit to the employer, and any defect in the process that exposes them to a claim.

Employers pay above the minimum for practical reasons. A dispute costs them legal fees, management time and, in some cases, reputation. A deed of release signed quickly is worth money to them.

Action 1: The first 24 hours

Before you negotiate anything, get the numbers. Send this in writing.

Two things happen when you send this. You get the information you need to check the calculation, and the employer understands you are paying attention.

Action 2: The negotiation conversation

Keep the tone measured. You are not making threats, you are pointing out a gap and offering certainty in exchange for closing it.

Adjust the specifics to your circumstances. With no process defect to point to, you are relying on goodwill, your service, your handover, and the value of a clean exit. Say that instead of inventing a grievance.

What the outcome data actually shows

Here is what actually happens. The picture is consistent year to year.

The numbers are public. In 2023-24 the Commission held 10,022 unfair dismissal conciliations. Of those, 7,744 settled, a settlement rate of about 77 per cent. Roughly 81 per cent of those settlements included a monetary component. Reinstatement featured in fewer than 1 per cent of them, 62 matters out of 7,744.

Two things follow from that. The system is built around money changing hands early, not around getting your job back. And the overwhelming majority of matters never reach a hearing, which is why the negotiation stage is where the outcome is usually decided.

For the small number that do go the distance, the median compensation ordered at a hearing in 2023-24 was $10,898, equivalent to about five weeks’ pay. Awards at the statutory maximum are rare, with fewer than 0.4 per cent of applicants receiving the cap.

A realistic range for an ex gratia uplift is therefore a few weeks of pay. Anything more usually reflects either a serious process defect or a genuine underlying claim. Nobody can promise a particular outcome, and the strength of your position depends on facts specific to you.

What if they threaten to withdraw the offer?

This happens, and it is usually a pressure tactic rather than a real position. A few points to hold onto.

Your statutory entitlements are not negotiable. Redundancy pay, notice and accrued leave are owed under the National Employment Standards regardless of whether you accept an ex gratia uplift. An employer cannot lawfully withdraw those.

Retracting a voluntary offer is not the same as retracting the redundancy. If the role is genuinely gone, the redundancy is happening either way.

Pressure to sign quickly is a signal, not a deadline. If you are told the offer expires today, ask for the deadline in writing. Reasonable employers give you time to obtain advice. If your employer will not, that tells you something about how confident they are in the process.

Adverse action for exercising a workplace right is unlawful. Asking questions about your entitlements is exercising a workplace right. If the response is a threat or a detriment, that may be a separate issue under the general protections provisions.

If negotiation stalls, a formal application to the Fair Work Commission is available, and many matters resolve at conciliation without a hearing.

Before you sign anything

A deed of release is final. It typically waives every claim you have against the employer, including claims for unpaid entitlements, discrimination and adverse action, whether or not you knew about them when you signed. It may also include confidentiality, non-disparagement and restraint clauses that continue to bind you afterwards.

Have the deed reviewed before you sign. The review usually takes less time than the negotiation and it is the last point at which anything can be changed.

If you are unsure whether your redundancy was genuine, or you want the numbers checked before you commit, our specialist employment lawyers advise both employees and employers on redundancy. We work on fixed fees for most services and act for clients across Australia in the Fair Work Commission.

Talk to a specialist employment lawyer today. Call Fair Workplace Solutions on 1800 565 975 or book a consultation. If you are within the 21-day window, do not wait until it has closed.

References

• Australian Bureau of Statistics, Job mobility, February 2025 (cat. no. 6223.0).
• Fair Work Commission, Compensation for unfair dismissal.
• Zaicos v Tamworth Dementia Respite Service Inc [2025] FWCFB 231.
• Australian Taxation Office, Schedule 11: tax table for employment termination payments.
• Fair Work Ombudsman, Redundancy pay.

This article contains general information only and is not legal advice. Tax figures are current for the 2026-27 financial year and are indexed annually. Your entitlements depend on your award, enterprise agreement, contract and personal circumstances, and tax outcomes depend on your individual position. You should obtain advice about your own circumstances before taking any action, particularly given the strict 21-day time limit that applies to many Fair Work Commission claims.