What Severance Pay Rules Must Employers Follow in Australia?

Which Employees Qualify for Severance Pay?

• Employees (other than casuals) who are dismissed because their job is no longer required and there is a genuine redundancy.
• Employees with at least 12 months of continuous service, noting that redundancy pay scales up with years of service.
• Full-time and part-time employees covered by the National Employment Standards, unless a specific exclusion applies.
• Employees of non-small-business employers (15 or more employees), as small business employers are generally exempt from redundancy pay.
• Employees who are not terminated for serious misconduct, performance, or other non-redundancy reasons.
• Employees who are not on a fixed-term contract that has simply reached its agreed end date.

What Are the Legal Timelines for Paying Severance?

In Australia, redundancy pay must generally be paid at the time of termination, together with the employee’s final pay. In practice, that means you should process redundancy pay on or before the employee’s last working day, or by the next regular payroll cycle at the latest. Final pay should also include accrued but unused annual leave and, where applicable, long service leave and notice or payment in lieu of notice. You should clearly itemise redundancy pay on the payslip so the employee can see how it was calculated. Where an employee works out their notice period, plan ahead so payroll, HR, and finance are aligned on the exact termination date and amounts.

What Penalties Apply if Severance Is Not Paid Correctly?

If your company fails to pay redundancy entitlements correctly, you risk claims to the Fair Work Commission or Federal Circuit and Family Court, back-pay orders, and civil penalties. Non-compliance can also trigger interest on late payments, legal costs, and reputational damage with employees and regulators.

• Courts can order you to back-pay any unpaid redundancy entitlements.
• Civil penalties may apply per breach under the Fair Work Act 2009.
• Employees may lodge disputes or unfair dismissal claims, increasing legal exposure.
• You may face audits or enforcement action from the Fair Work Ombudsman.
• Poor handling of redundancies can damage your employer brand and retention.

Does Outsourcing Employment via an EOR Change Severance Liability?

Using an Employer of Record (EOR) such as https://www.playroll.com/employer-of-record does not remove the need to follow Australian redundancy rules, but it can shift who is the legal employer on paper. In most EOR models, the EOR is responsible for administering statutory entitlements, including redundancy pay, in line with the Fair Work Act and any applicable awards. However, your company typically controls day-to-day work, performance, and restructuring decisions, so you may still carry commercial or contractual responsibility. You should ensure your EOR agreement clearly allocates liability for redundancy costs, calculations, and disputes. Always coordinate early with the EOR before announcing role closures or restructures affecting Australian employees.

Be 100 Percent Compliant in Offering Severance with Playroll

Playroll helps your company stay aligned with Australian redundancy rules by standardising how you collect, store, and apply key employment data. Your team can track start dates, service periods, and working patterns so redundancy calculations are based on accurate, up-to-date records. Playroll’s workflows help you distinguish between genuine redundancies and other terminations, reducing the risk of misclassification.

With Playroll, you can coordinate HR, legal, and finance when planning restructures that affect Australian staff, whether they are hired directly or via an EOR partner. The platform supports clear documentation of termination reasons, notice handling, and final pay breakdowns, so employees receive the right redundancy pay on time. That way, you reduce the risk of Fair Work disputes while maintaining a transparent, respectful offboarding experience.