Does Your Small Business Need to Pay Redundancy?A Legal Guide

Redundancy. Just saying the word makes most business owners wince. Whether you’re tightening the belt, restructuring or just trying to survive another financial year, making roles redundant can be tough.

But if you don’t know your legal obligations, it can get a whole lot tougher. Redundancy mistakes are one of the fastest ways to end up on the wrong side of a Fair Work claim. And nobody wants that.

So let’s answer the question we get all the time. Do small businesses really have to pay redundancy?

The short answer is maybe. The long answer? Let’s break it down.

What counts as redundancy?

Redundancy happens when a role is no longer required. It’s not about performance, bad vibes or personal issues. It’s about operational change.

Redundancy is genuine if:

• The job is no longer needed
• You consult with the employee
• There’s no suitable role you can redeploy them into

If any of those pieces are missing, the whole thing can fall apart. Hello unfair dismissal claim.

The small business exemption

Here’s some good news. If your business has fewer than 15 employees (yes, including regular casuals), you’re usually exempt from paying redundancy under the National Employment Standards.

But before you breathe a sigh of relief, know this. That exemption doesn’t mean you can skip process altogether.

You still need to:

• Give proper notice
• Consult with affected employees
• Make sure it’s a genuine redundancy

Also, some awards override the exemption and still require redundancy pay for small businesses. Always check the award or enterprise agreement that applies to your business. Trust us. It’s worth the two-minute read.

What’s changed recently?

Legislation updates now mean that if your business downsizes to under 15 employees because you’re insolvent, you may still have to pay redundancy. So you can’t shrink your headcount to sneak out of your obligations. Fair Work sees you.

Who gets redundancy pay?

Employees are entitled to redundancy pay if:

• They’ve worked for you for at least 12 months
• They’re not casual
• Their job is being made genuinely redundant

Here’s what redundancy pay looks like for businesses with 15 or more employees:

Years of Service	Redundancy Pay
1 – 2 years	4 weeks
2 – 3 years	6 weeks
3 – 4 years	7 weeks
4 – 5 years	8 weeks
5 – 6 years	10 weeks
6 – 7 years	11 weeks
7 – 8 years	13 weeks
8 – 9 years	14 weeks
9 – 10 years	16 weeks
10+ years	12 weeks

Yep, it goes down again at 10 years. Don’t ask us why. Long service leave math is its own beast.

Avoiding redundancy fails

If you’re planning a redundancy, here’s what you need to get right:

1. Use a checklist

Before you start, double check:

• Is this a genuine redundancy?
• Have you consulted the employee?
• Is there another role they could move into?
• Are you covered by an award or EA that overrides the small biz exemption?

2. Have the awkward conversation properly

You need to tell the employee what’s happening, why the role is ending, and whether redeployment is an option. This isn’t the time for vague “it’s just not working out” chats. Be clear and compassionate.

3. Give the correct notice

Notice periods depend on how long the person has worked with you.

Years of Service	Minimum Notice
Less than 1 year	1 week
1 – 3 years	2 weeks
3 – 5 years	3 weeks
5+ years	4 weeks

If they’re over 45 and have worked with you for 2+ years, they get an extra week.

4. Don’t forget the extras

Even if you don’t have to pay redundancy, there’s still value in offering support:

• Provide a reference
• Help them with their resume
• Give time off for interviews

It’s good karma and good business.

One more thing about awards and agreements

Even if your business qualifies for the small business redundancy exemption, some awards still require redundancy pay. Industries like hospitality, construction and retail can have extra rules.

Always check before you call it.

Final thoughts

Redundancy consultation sucks. For the employee. For the business. For your inbox.

But when you handle it properly, you protect your people, your brand and your back pocket.

If you’re still unsure whether the small business exemption applies, or you want to make sure you’re doing the right thing, it’s smart to get advice before you take action.

Clear communication. Clean process. No legal headaches.

And if you need help ticking all the boxes, HR Gurus is just a call away.