A redundancy payout is compensation paid to an employee whose position has been made genuinely redundant. This payment may include notice, unused leave, and a tax-free redundancy amount, depending on the employee’s service and entitlements.

Redundancy is not the same as dismissal. It must follow Fair Work guidelines and be reported correctly through STP and for tax purposes.

What’s Included in a Redundancy Payout?

Component	Tax Treatment
Redundancy payment	Partially tax-free (limits apply)
Payment in lieu of notice	Taxable
Unused annual leave	Taxed as Lump Sum A
Unused long service leave	Taxed as Lump Sum B
Severance or ex gratia	May be treated as ETP

The genuine redundancy component is treated separately from other termination payments.

Tax-Free Redundancy Threshold (2025–26 example)

For a genuine redundancy, part of the payment is tax-free based on:

• Base amount: $11,985
• Plus $5,994 for each completed year of service

Amounts exceeding this are taxed as ETPs at concessional or marginal rates.

Example: 5 years of service
Tax-free limit = $11,985 + (5 × $5,994) = $41,955

Eligibility for a Genuine Redundancy

A redundancy is genuine if:

• The job is no longer required
• It’s not due to poor performance or conduct
• The employee is under pension age
• The employer complies with consultation and redeployment obligations

Unfair dismissal laws may apply if procedures aren’t followed.

Employer Responsibilities

• Follow the Fair Work Act for consultation
• Calculate entitlements using correct service dates and caps
• Classify and report amounts in STP Phase 2
• Issue a final income statement with ETP components
• Retain evidence of redundancy for compliance and audit purposes

How Ozobooks Helps

• Calculates tax-free and taxable portions accurately
• Applies correct income and lump sum codes in STP
• Ensures payments follow Fair Work redundancy rules
• Prepares clear final payslips and income statements
• Advises on group redundancies or business downsizing

FAQ

Q1: Is redundancy pay always tax-free?
No — only the genuine redundancy portion is tax-free. The rest may be taxed as an ETP.

Q2: Does every employee get redundancy pay?
No — casuals, contractors, and some short-term employees may not qualify. Check the award or agreement.

Q3: Can redundancy be voluntary?
Yes — employers may offer voluntary redundancy, but it must still follow Fair Work criteria.

Q4: Do I pay super on redundancy payouts?
No — super is not required on the redundancy component, but may apply to notice or leave.