How do I make a position redundant in my small business — and do I have to pay redundancy?
By Paulette McCormack, CAHRI — Founder & Director, Fresh HR Insights
Small Business Redundancy – Last reviewed: June 2026
In 12+ years supporting Gold Coast and South East Queensland small businesses through restructures, the single most expensive mistake I see is an owner treating a small business redundancy as a way to remove a person they’d rather not have, instead of a position the business genuinely no longer needs. That distinction is the whole ball game. Get it wrong and what you’ve called a “redundancy” can land you in the Fair Work Commission (FWC) defending an unfair dismissal claim — with legal costs, a possible compensation order, and a lot of stress that was entirely avoidable.
Here’s how a small business redundancy actually works, what you’re legally required to pay, and the steps I take clients through so the process stands up to scrutiny.
First: what counts as a “genuine redundancy”?
A small business redundancy is genuine only when the role — not the person — is no longer required. Under section 389 of the Fair Work Act 2009 (Cth), a dismissal is a genuine redundancy when all of these are true:
- The employer no longer requires the person’s job to be performed by anyone because of changes in the operational requirements of the business (for example, the work has dried up, been automated, or absorbed into other roles); and
- The employer has complied with any consultation obligation in a modern award or enterprise agreement that applies to the employee; and
- It would not have been reasonable to redeploy the employee elsewhere in the business or in an associated entity.
All three limbs must be met. They are cumulative — miss one, and the redundancy is not “genuine”, which removes your protection against an unfair dismissal claim (Fair Work Commission — What is a genuine redundancy).
A word on redeployment, because it just got harder: in Helensburgh Coal Pty Ltd v Bartley [2025] HCA 29 (decided 6 August 2025), the High Court confirmed the FWC can ask whether an employer could have restructured how it uses its workforce — including bringing contractor work back in-house — to create a redeployment opportunity. In other words, “there was no spare desk” is no longer a complete answer. You need to show you genuinely turned your mind to whether the affected person could reasonably have been kept on.
Do small businesses have to pay redundancy pay?
When it comes to small business redundancy – this is the question I’m asked most, and the answer surprises a lot of owners.
Most small business employers do not have to pay redundancy pay under the National Employment Standards (NES). A “small business employer” means one that employs fewer than 15 employees at the relevant time (Fair Work Ombudsman — Who doesn’t get redundancy pay; Fair Work Act 2009 s 23, s 121).
But read the fine print, because this is where owners trip up:
- The 15 is a headcount, not full-time-equivalents. You count all employees — full-time, part-time, and any casuals employed on a regular and systematic basis — plus the employees of any associated entities (related companies in your group). Two companies you own can be added together.
- The exemption only removes the NES redundancy pay obligation. You still must give the correct notice of termination (see below), pay out accrued annual leave and any long service leave, and run a fair process.
- Some modern awards override the small business exemption. A handful of awards contain industry-specific redundancy schemes that require even small businesses to pay redundancy — the Building and Construction, Timber, and certain other awards are examples. Always check the redundancy clause in the actual award that covers the role (Fair Work Ombudsman — Redundancy pay).
⚠️ VERIFY: If your business has recently shrunk below 15 because of insolvency or downsizing, the small-business exemption may not apply in the way you’d expect (a change introduced by the Closing Loopholes reforms). Check the current position with the Fair Work Ombudsman / FWC before relying on the exemption in that scenario.
How much notice do I have to give?
Notice of termination is a separate, non-negotiable NES entitlement under section 117 of the Fair Work Act 2009. It applies to a redundancy too, and it applies even to small business redundancy. You must give written notice (or pay in lieu) of at least:
| Employee’s period of continuous service | Minimum notice |
| 1 year or less | 1 week |
| More than 1 year, up to 3 years | 2 weeks |
| More than 3 years, up to 5 years | 3 weeks |
| More than 5 years | 4 weeks |
Add one extra week if the employee is over 45 years old, has completed at least 2 years of continuous service, and the dismissal/termination was at the employer’s initiative, not the employee’s. (Source: Fair Work Act 2009 s 117; Fair Work Ombudsman.) Your employment contract or the award may require more — if so, the higher amount applies.
How much redundancy pay (if your business has 15+ employees)?
If the NES applies to you, redundancy pay is based on the employee’s continuous service and paid at their base rate of pay for ordinary hours — it excludes overtime, penalty rates, allowances, bonuses, and loadings (Fair Work Act 2009 s 119):
|
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 |
Yes — that last row is correct, and no, it isn’t a typo on my part. Redundancy pay drops from 16 weeks to 12 weeks once an employee passes 10 years’ service. It’s a genuine quirk of the legislation (it reflects long service leave becoming payable). You can always pay more than the NES under a contract or policy, but you can never pay less.
On tax: a genuine redundancy payment is taxed concessionally up to a tax-free limit that the ATO re-indexes every financial year (a base amount plus an amount for each completed year of service).
⚠️ VERIFY: confirm the current-year base and per-year figures on the ATO’s “Genuine redundancy and early retirement scheme payments” page before you quote any dollar amount.
Small Business Redundancy – The consultation step owners skip — and shouldn’t
If the employee is covered by a modern award or enterprise agreement (most are), that instrument almost always contains a consultation clause that is triggered by a “major workplace change”, which a redundancy is. Skipping it is the most common way an otherwise-sound redundancy fails limb 2 of s 389. Consultation isn’t a box-ticking email; at a minimum it means:
- notifying the affected employee(s) as soon as a firm decision to consider change is made (not after you’ve already decided to terminate);
- giving them written information about the proposed change and its likely effects;
- discussing the change, including steps to avoid or reduce the impact (reduced hours, redeployment, voluntary redundancy); and
- genuinely considering anything they raise before you make the final call.
The order matters. Consultation has to happen while the decision is still open, not be reverse-engineered afterwards.
Paulette’s 7-step redundancy framework
This is the sequence I run every client through:
- Define the business reason in writing. What operational change is driving this? Document it before you do anything else — it’s your evidence for limb 1.
- Identify the award/agreement and read its consultation and redundancy clauses. Don’t assume the NES is the whole story.
- Confirm your headcount and the small-business position (including associated entities).
- Consult genuinely and in writing — invite the employee, allow a support person, and keep file notes.
- Actively consider redeployment, including whether the work could be reorganised (post-Helensburgh). Record what you considered and why it wasn’t reasonable.
- Calculate the full final pay — notice (s 117), redundancy pay if applicable (s 119), accrued annual leave, and long service leave.
- Confirm in writing, with a clear termination date and a correct final-pay breakdown.
What most owners get wrong
- They decide first and “consult” after. If your mind is already made up, it isn’t consultation — and the FWC can tell.
- They make the person redundant, then hire a replacement (or re-advertise the “restructured” role weeks later). That’s the fastest way to prove the role was not genuinely redundant.
- They assume “small business = no redundancy pay, full stop” and forget notice, leave payouts, and the awards that override the exemption.
- They treat redundancy as a soft alternative to managing performance. If the real issue is conduct or capability, that’s a performance process — a different (and also process-driven) road entirely.
Can your Small Business survive a redundancy mistake?
Redundancy is one of the most serious employment decisions a business owner can make, and it’s also one of the most legally risky if it isn’t handled correctly. I’ve been supporting small businesses through redundancy processes since 2012, through the GFC, through COVID, and through the ongoing economic pressures we’re all navigating right now. And the most common thing I see? Business owners who had every right to make a redundancy, but did it wrong. The good news is, with the right process in place, you can protect your business and treat your people with the dignity they deserve. Read our article HERE
This information is general information only and not legal advice. For advice specific to your situation
A real (de-identified) scenario
A Gold Coast services business with 11 staff decided to make an administrator’s role redundant when they moved their bookings online. The owner was confident: “We’re a small business — we don’t pay redundancy.” All true on the pay point. But they hadn’t checked the award’s consultation clause, gave the employee a single day’s verbal notice, and three weeks later advertised a “Client Experience Coordinator” doing 70% of the same tasks. The result was an unfair dismissal claim that settled — for far more than the notice and a clean process would ever have cost. We rebuilt their template process so the next restructure (which came a year later) was textbook: documented reason, written consultation, redeployment genuinely considered, correct notice. No claim, and the departing employee left on good terms.
Paulette McCormack, CAHRI — Founder & Director, Fresh HR Insights
12+ years. Hundreds of Australian small businesses. Countless redundancies handled the right way. Paulette pairs a Master’s in Human Resource Management, a Master’s in Employment Relations, and a Bachelor of Laws (Honours) — along with a lecturing and tutoring role at Griffith University — with hands-on experience walking owners through restructures that withstand Fair Work scrutiny. Calmly, lawfully, and without the costly missteps. Paulette has your back.
Redundancy Sprint — Tailored Templates + Expert Walk-Through
- ✅ Tailored letters, scripts, and a consultation timetable — for your business, not generic.
- ✅ A 45-minute consultation to walk through it together.
- ✅ Built on Fresh HR Insights’ proven Redundancy Pack — used by hundreds of Australian businesses.
- ✅ Selection matrix review so your reasoning is defensible.
Need More Support?
Explore our other resources and services designed to help your business stay compliant and confident in all things HR.
Primary sources
- Fair Work Act 2009 (Cth) — ss 117 (notice), 119 (redundancy pay), 121 & 23 (small business / when redundancy pay doesn’t apply), 389 (meaning of genuine redundancy)
- Fair Work Ombudsman — Redundancy pay; Who doesn’t get redundancy pay; Notice and final pay
- Fair Work Commission — What is a genuine redundancy
- Helensburgh Coal Pty Ltd v Bartley [2025] HCA 29 (High Court of Australia, 6 August 2025)
