An employer calculates redundancy pay using the NES redundancy pay scale under section 119 of the Fair Work Act 2009. The amount depends on the employee’s continuous years of service and their base rate of pay at the time of dismissal. For an employee on an annual salary, the formula is: weeks of redundancy pay x (annual salary / 52). For an hourly employee: weeks of redundancy pay x weekly rate.

Under the Fair Work Act, redundancy pay is a National Employment Standards (NES) entitlement that cannot be contracted out of — unless a modern award or enterprise agreement provides more generous terms. Employers who underpay redundancy face back-payment orders, penalties from the Fair Work Ombudsman, and potential unfair dismissal claims with compensation up to $95,050 (half the $190,100 high income threshold from 1 July 2026).

How to Calculate Redundancy Pay: The NES Scale Under the Fair Work Act

Section 119 of the Fair Work Act sets out the minimum redundancy pay based on an employee’s continuous years of service:

At 10 or more years, the redundancy pay period reduces from 16 weeks to 12 weeks because long service leave entitlements apply. This reduction reflects the interplay between redundancy pay and long service leave under the NES.

How to Calculate the Redundancy Pay Amount: Step by Step

Follow these steps to calculate redundancy pay correctly:

1. Identify the employee’s continuous years of service. Count from the commencement date to the date dismissal takes effect.
2. Determine the applicable weeks from the NES pay scale. Use the table above.
3. Establish the base rate of pay. Use the employee’s base rate at the time of dismissal — excluding overtime, penalty rates, allowances, and bonuses.
4. Calculate the redundancy pay. For salaried employees: weeks x (annual salary / 52). For hourly employees: weeks x weekly rate.
5. Add accrued entitlements. Redundancy pay is paid in addition to notice (or payment in lieu), accrued annual leave, long service leave, and unused time-in-lieu.

For worked examples and templates, employers can access our range of free employment document templates, including redundancy letter templates and termination documents.

Redundancy Pay in Australia: Small Business Exemption

Small businesses with fewer than 15 employees are exempt from the NES redundancy pay requirement. At the time of the redundancy, count the employee being made redundant and all other employees — including full-time, part-time, and regular casuals. If the total is fewer than 15, NES redundancy pay is not payable.

However, a modern award or enterprise agreement may still require redundancy pay for small business employees. Always check the applicable instrument before deciding no payment is due.

Even if NES redundancy pay does not apply, employees are still entitled to notice of termination (or payment in lieu), accrued annual leave, any applicable long service leave, and any contractual entitlements. For guidance on the full process, see our redundancy advice for employers and resources on termination of employment.

How Redundancy Pay Works for Part-Time and Casual Employees

Part-time employees receive redundancy pay on a pro-rata basis — the same number of weeks as full-time employees, calculated using their ordinary weekly hours and base hourly rate. Casual employees are generally not entitled to NES redundancy pay, as casuals are not permanent employees under the Fair Work Act. However, regular and systematic casuals may be entitled if covered by a specific modern award or enterprise agreement that extends redundancy pay to casuals.

Can an Employer Reduce Redundancy Pay?

An employer can apply to the Fair Work Commission under section 120 to have redundancy pay reduced if they obtain other acceptable employment for the employee, or if the employer can’t pay. The FWC considers the employee’s views on the new role, similarity of duties, pay, and location, years of service, and the employer’s financial circumstances. This is the only mechanism for reducing statutory redundancy pay — employers cannot unilaterally decide to pay less than the NES amount.

Common Mistakes Employers Make With Redundancy Pay

Getting the calculation wrong is costly. The Fair Work Ombudsman actively enforces redundancy pay compliance. Common mistakes include:

• Excluding part-time employees. If the employer has 15+ employees, part-timers are entitled to pro-rata redundancy pay.
• Not consulting before redundancy. Most awards require a consultation process. Failure to consult can make the redundancy an unfair dismissal.
• Using the wrong pay rate. Redundancy pay is calculated on the base rate, not the total package including overtime or allowances.
• Miscounting the small business threshold. Regular casuals should be counted when determining whether the 15-employee threshold is met.
• Reducing pay without FWC approval. A section 120 application is required — employers cannot simply decide to pay less.

For a deeper understanding of the legal test, read our article on genuine redundancy under the Fair Work Act. If the employee lodges an unfair dismissal claim, they have 21 days from the date of dismissal to apply to the FWC.