If you have been made redundant, you may see the term severance pay on a letter from HR or on your final payslip and wonder how it differs from redundancy pay. In Australia it does not differ at all: severance pay is simply another name for redundancy pay. It is a legal minimum set by the National Employment Standards (NES) in the Fair Work Act 2009, worked out as a number of weeks of pay that grows with your length of continuous service. This guide explains the full NES scale, what the payment includes and excludes, when it is not paid at all, when the amount can be reduced, and how it is taxed, with a worked example you can follow and check on the redundancy calculator.
Key takeaways
- Severance pay and redundancy pay mean exactly the same thing in Australia; both come from NES section 119.
- The scale runs from 4 weeks at 1 year up to 16 weeks at 9 years, then reduces to 12 weeks at 10+ years because long service leave supplements it.
- It is paid at your base rate for ordinary hours (no overtime, penalties, allowances, loadings or bonuses) and is on top of notice and unused leave.
- Employees with under 12 months of service, casuals, and staff of small businesses with fewer than 15 employees generally miss out, and the Fair Work Commission can reduce the amount in limited cases.
Severance pay and redundancy pay are the same thing
Under the national workplace relations system there is no separate entitlement called severance pay. The words severance pay, redundancy pay and, informally, a redundancy payout all describe the same NES entitlement. It is triggered when your employer terminates your job at its own initiative because the role is no longer required to be done by anyone (a genuine redundancy), or because the business becomes insolvent or bankrupt. It is not paid when you resign, when you are dismissed for misconduct, or when the change is simply the ordinary and customary turnover of labour. You can see how the surrounding rules fit together in our Fair Work Act guide, and look up any unfamiliar terms in the glossary.
The amount is based on continuous service, meaning the unbroken period you have worked for that employer. Periods of unpaid leave do not count towards the length of service, but they do not break it either. Time worked as a casual does not count towards continuous service for redundancy purposes, even if you later converted to a permanent role. The longer your continuous service, the more weeks of severance pay you are entitled to, up to the caps set out below.
The NES severance pay scale
The NES sets out a fixed table of weeks. Your redundancy pay period rises with each year of service up to nine years, then steps back down at ten years. This is deliberate rather than a mistake: once you reach ten years you are generally entitled to long service leave, which is expected to supplement the redundancy payment, so the scale reduces from 16 weeks to 12 weeks. The full scale set by the Act is:
| Period of continuous service | Redundancy (severance) 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 |
Fair Work Act 2009 (Cth) s.119, which sets the redundancy pay period table. The 16-week peak at 9 years and the reduction to 12 weeks at 10+ years are confirmed by the Fair Work Ombudsman.
What severance pay includes and excludes
Severance pay is calculated at your base rate of pay for your ordinary hours of work. The base rate is your ordinary wage before any extras are added. It does not include:
- incentive-based payments and bonuses;
- loadings (including casual loading and annual leave loading);
- monetary allowances;
- overtime or penalty rates; and
- any other separately identifiable amounts.
So if you normally earn a good deal through overtime or weekend penalty rates, your severance pay is worked out on the lower base figure, not your usual take-home pay. Severance pay is also paid on top of your other end-of-employment entitlements, not instead of them. In your final pay you should still receive your notice of termination (or pay in lieu of that notice), plus any unused annual leave and any unused long service leave. These are all separate amounts that are added together.
When severance pay is not paid
Not every redundancy attracts severance pay. Under the Act, the entitlement does not apply, or applies differently, in several situations:
- Less than 12 months of continuous service. If you have worked for the employer for under a year at the time you are given notice, no redundancy pay is owed, although you may still be entitled to notice.
- Small business employers. An employer with fewer than 15 employees is generally exempt. This is a significant carve-out, explained in our small business redundancy guide.
- Casual employees. Casual service does not count as continuous service for redundancy pay, so casuals generally do not receive it.
- Some fixed-term, task-based and seasonal work. Employees engaged for a set period, a specified task, or a particular season are generally excluded when the job ends as arranged.
Awards and enterprise agreements can also contain their own redundancy rules that differ from the NES, and a handful of industry-specific redundancy schemes (for example in building and construction) replace the standard scale entirely. If you believe your redundancy was not genuine, you may have a separate claim for unfair dismissal.
Fair Work Act 2009 (Cth) s.121 excludes employees with less than 12 months of continuous service and those employed by a small business employer, as confirmed by the Fair Work Ombudsman.
When the amount can be reduced
Even where severance pay is owed, the amount is not always fixed. Under section 120 of the Act, an employer can apply to the Fair Work Commission to have the redundancy pay reduced (potentially to nil) in two situations: where the employer has obtained other acceptable employment for the employee, or where the employer cannot afford to pay the full amount. The Commission decides what figure is appropriate, so the reduction is not automatic and the employer must lodge an application. This ability to apply only exists where the entitlement comes from the NES. If your redundancy pay comes from an award or an enterprise agreement, the employer cannot use this process to reduce it.
How severance pay is taxed
A genuine redundancy severance payment receives concessional tax treatment. A portion is tax-free up to a limit that is made up of a base amount plus an amount for each completed year of service, and it is indexed each financial year. Anything above that tax-free cap is treated as an employment termination payment (ETP) and taxed at concessional rates up to a cap, with the balance taxed at your marginal rate. Your unused annual leave and long service leave paid on redundancy are taxed under their own separate rules. Because the figures change each year, work through the current thresholds and a full example in our how redundancy pay is taxed guide.
A worked example
Daniel is a full-time employee whose base rate of pay works out to $1,600 per week for his ordinary 38 hours. He has 7 years of continuous service with a company that employs 40 staff, and his role is made genuinely redundant.
Daniel's continuous service of 7 years sits in the "at least 7 years but less than 8 years" band, which is 13 weeks of redundancy pay.
Severance pay = 13 weeks × $1,600 = $20,800, calculated on his base rate only. The regular overtime and the annual bonus he usually earns are excluded.
On top of that $20,800, Daniel also receives his notice period (or pay in lieu), plus his unused annual leave and any long service leave, all paid out in his final pay.
Frequently asked questions
Is severance pay the same as redundancy pay in Australia?
Yes. There is no separate legal entitlement called severance pay under the NES. It is an everyday term for the redundancy pay set out in section 119 of the Fair Work Act.
Why does severance pay drop at 10 years of service?
Because at ten years an employee is generally entitled to long service leave, which the scale assumes will supplement the redundancy payment. That is why the entitlement peaks at 16 weeks for 9 years of service and then reduces to 12 weeks once you reach 10 years.
Do casual employees get severance pay?
Generally no. Casual service does not count towards continuous service for redundancy pay, so casuals do not receive it even if they have worked regular hours for years.
Can my employer refuse to pay severance because they found me another job?
They cannot simply refuse, but they can apply to the Fair Work Commission to reduce the amount if they have obtained other acceptable employment for you, or if they cannot afford to pay. The Commission decides the appropriate figure.
Is severance pay taxed?
A genuine redundancy payment is tax-free up to an indexed cap based on your years of service, with the excess taxed as an employment termination payment. See the redundancy tax guide for the current figures, and browse more common questions in our FAQ.
Author & reviewer
Sarah has spent over a decade advising Australian SMBs on Fair Work, NES compliance, and payroll. Based in Sydney, she has worked across hospitality, retail and professional services.