Contents
- What Is Genuine Redundancy?
- Minimum Redundancy Pay — The NES Scale
- Tax-Free Component 2025–26
- Tax on the Remaining Amount
- What Else Are You Entitled To?
- What to Do With Your Redundancy Payout
- How to Check What You Are Actually Owed
- The Centrelink Trap Nobody Warns You About
- Common Mistakes With Redundancy Payments
- Where to Get Help
- Summary
- Frequently Asked Questions
What Is Genuine Redundancy?
A genuine redundancy occurs when your position is no longer needed because of changes to the business — not because of anything you did. The ATO has a specific definition: your job must be genuinely redundant (not being filled by someone else), and your employer must have complied with any consultation obligations in your Modern Award or Enterprise Agreement.
This matters because genuine redundancy payments receive significant tax concessions that other termination payments do not.
💰 Calculate Your Redundancy Pay
Enter your years of service and weekly pay to see your NES entitlements, tax-free component, and estimated payout.
Redundancy Pay Calculator →Minimum Redundancy Pay — The NES Scale
The National Employment Standards (NES) set minimum redundancy pay entitlements based on years of continuous service. Your Award, Enterprise Agreement, or employment contract may provide more.
| Years of Continuous Service | Minimum Weeks' Pay |
|---|---|
| Less than 1 year | Nil |
| 1 year – 2 years | 4 weeks |
| 2 years – 3 years | 6 weeks |
| 3 years – 4 years | 7 weeks |
| 4 years – 5 years | 8 weeks |
| 5 years – 6 years | 10 weeks |
| 6 years – 7 years | 11 weeks |
| 7 years – 8 years | 13 weeks |
| 8 years – 9 years | 14 weeks |
| 9 years – 10 years | 16 weeks |
| 10 years or more | 12 weeks |
Note: Businesses with fewer than 15 employees are exempt from the NES redundancy pay requirements (though you may still be entitled to notice period and leave payouts).
Tax-Free Component 2025–26
This is one of the most valuable features of genuine redundancy — a portion of your payment is completely tax-free. For 2025–26, the tax-free amounts are:
- Base amount: $12,524
- Plus per completed year of service: $6,264
Example: If you've worked for 8 completed years, your tax-free cap is: $12,524 + (8 × $6,264) = $12,524 + $50,112 = $62,636 tax-free.
If your redundancy payment is less than this cap, the entire payment is tax-free!
Tax on the Remaining Amount
If your redundancy payment exceeds your tax-free cap, the excess is taxed as an Employment Termination Payment (ETP) at a maximum rate of 32% (including Medicare levy), which is lower than the top marginal rate of 47%. This is still a significant concession for high earners.
What Else Are You Entitled To?
Notice Period
Under the NES, you are entitled to a minimum notice period based on your years of service:
| Years of Service | Minimum Notice |
|---|---|
| Less than 1 year | 1 week |
| 1–3 years | 2 weeks |
| 3–5 years | 3 weeks |
| 5 years or more | 4 weeks |
Over 45 years old with 2+ years service: Add 1 additional week to the above notice periods.
Your employer can pay you notice in lieu (a lump sum instead of working the notice period). This payment is taxed as normal income.
Annual Leave Payout
All accrued but untaken annual leave must be paid out on termination. This is taxed as normal income (not as an ETP).
Long Service Leave
If you have accrued long service leave, this must be paid out. Tax treatment depends on when the leave was accrued.
What to Do With Your Redundancy Payout
- Don't panic-spend — Take time before making major financial decisions with a large lump sum.
- Understand your Centrelink waiting period — If you receive a redundancy payment, Centrelink imposes a "liquid assets waiting period" before you can receive JobSeeker. This can be up to 13 weeks depending on the amount received.
- Consider topping up super — If you have room under the $120,000 non-concessional cap, contributing to super can be tax-effective.
- Pay down high-interest debt — Credit cards and personal loans should be prioritised.
- See a financial adviser — A redundancy payout can be a rare opportunity to significantly improve your financial position with proper planning.
How to Check What You Are Actually Owed
A redundancy payout is not one payment. It is several, each governed by different rules and taxed differently. Working through them in order is the only way to know whether the figure you have been offered is right.
The Centrelink Trap Nobody Warns You About
A large redundancy payment can trigger an income maintenance period. Services Australia may treat the payment as though it were ordinary income spread across a number of weeks, which can delay when you become eligible for JobSeeker or other payments.
The practical effect is that support is least available precisely when you have just lost your job. Understanding this before you accept an offer, rather than after, gives you time to plan your cash flow across the gap.
The rules are specific and depend on the type and size of the payment. Contact Services Australia directly to understand how your particular payout will be assessed before assuming you can claim immediately.
Common Mistakes With Redundancy Payments
Where to Get Help
The Fair Work Ombudsman can advise on entitlements under the NES, awards, and enterprise agreements. A registered tax agent can confirm the tax treatment of each component. Services Australia can tell you how the payment affects your access to support payments. If you believe the redundancy was not genuine, or was a dismissal in disguise, seek legal advice promptly — strict time limits apply to unfair dismissal claims.
Summary
A redundancy payout comprises severance based on years of service, payment in lieu of notice, and accrued leave. Only the genuine redundancy severance component attracts the tax-free base and per-year amounts, and only where the redundancy is genuine.
Check all three sources of entitlement, separate the components before comparing offers, understand the Centrelink consequences before accepting, and take advice before signing a deed of release. This page is general information only and is not financial, tax, or legal advice.
Frequently Asked Questions
Do I get redundancy pay if my employer is a small business?
Under the National Employment Standards, employers with fewer than fifteen employees are generally not required to pay redundancy pay. However, an applicable modern award, enterprise agreement, or your individual contract may still create an entitlement, so all three should be checked.
Is my entire redundancy payment tax free?
No. Only the genuine redundancy severance component, up to the tax-free limit made up of a base amount plus an amount per completed year of service, is tax free. Amounts above that limit, payment in lieu of notice, and accrued leave payouts are taxed under their own rules.
Is superannuation paid on a redundancy payment?
Superannuation is generally not payable on a genuine redundancy severance payment. It usually is payable on payment in lieu of notice. This distinction surprises many people and is worth confirming with your employer.
Will a redundancy payout affect my Centrelink payments?
It can. A redundancy payment may trigger an income maintenance period, during which Services Australia treats the payment as though it were ordinary income spread across a number of weeks. This can delay eligibility for JobSeeker or similar payments.
What is the difference between severance pay and payment in lieu of notice?
Severance pay compensates you for the loss of the position and is based on your years of continuous service. Payment in lieu of notice is paid instead of requiring you to work out your notice period. They are separate entitlements with different tax treatment.
Should I sign a deed of release when accepting redundancy?
A deed of release commonly extinguishes your right to bring future claims against the employer. Before signing, understand precisely what you are giving up. If you believe the redundancy may not be genuine, seek legal advice promptly, as strict time limits apply to unfair dismissal claims.