Redundancy vs retrenchment: what Australian small business owners need to know

If you're an Australian employer trying to work out whether you need to make a role redundant — or someone has told you they're being "retrenched" — the terminology can be confusing. The good news: under the Fair Work Act 2009, the two words mean essentially the same thing. The bad news: the rules around genuine redundancy and small business obligations are strict, and getting them wrong is one of the most common ways small employers end up at the Fair Work Commission.

Quick answer: what's the difference?

Redundancy is the legal term used in the Fair Work Act. It happens when an employer no longer requires a person's job to be performed by anyone because of changes in the operational requirements of the business.

Retrenchment is the older, more conversational word for the same thing — it just means the employee has been let go because their position has been removed, not because of anything they did. In Australia today, the Fair Work Act, the Modern Awards and the National Employment Standards (NES) all use the word "redundancy".

Both are different from a dismissal for performance or misconduct. A redundancy is about the role ending; a dismissal is about the person.

The "genuine redundancy" test

Section 389 of the Fair Work Act sets out three things that must be true for a redundancy to be a genuine redundancy (and therefore protect you from most unfair dismissal claims):

1. The job is no longer required to be performed by anyone because of changes in the operational requirements of the business (for example, restructure, downturn, automation, closure of a site).
2. You have complied with any consultation obligations in the applicable Modern Award or enterprise agreement. Almost every award requires you to consult employees about major workplace change as soon as a definite decision has been made.
3. It would not have been reasonable in all the circumstances to redeploy the employee elsewhere in your business (or an associated entity).

Miss any one of these and the redundancy is not "genuine" — which opens the door to an unfair dismissal claim, even though the role is genuinely gone.

The 15-employee small business threshold

This is the rule that most small employers get wrong. Under the NES, employers with fewer than 15 employees (a "small business employer") are not required to pay redundancy pay. Employers with 15 or more employees must pay redundancy pay on the scale set out in section 119 of the Fair Work Act.

Key things to know about the headcount:

• You count all employees across your business and any associated entities.
• Full-time and part-time employees count as one each.
• Regular and systematic casuals count too — one-off or irregular casuals generally don't.
• You count heads at the time the redundancy takes effect, including the employee being made redundant and anyone else being made redundant on the same day.

Even if you're under 15 and don't owe redundancy pay, you still owe notice of termination (or pay in lieu), unused annual leave, and any other entitlements under the NES, the Modern Award and the contract.

The redundancy pay scale (section 119)

If you have 15 or more employees, the NES minimum redundancy pay is:

• 1 to less than 2 years' service — 4 weeks' pay
• 2 to less than 3 years — 6 weeks
• 3 to less than 4 years — 7 weeks
• 4 to less than 5 years — 8 weeks
• 5 to less than 6 years — 10 weeks
• 6 to less than 7 years — 11 weeks
• 7 to less than 8 years — 13 weeks
• 8 to less than 9 years — 14 weeks
• 9 to less than 10 years — 16 weeks
• 10+ years — 12 weeks (the drop reflects long-service leave eligibility)

Your Modern Award or enterprise agreement may set higher amounts — always check the instrument that covers the employee.

A safe redundancy process — step by step

1. Identify the operational reason. Write it down. "We're moving the bookkeeping to an external provider" is a reason; "we don't like her attitude" is not.
2. Check the award or agreement for consultation requirements. Most require written notice of the change and a genuine opportunity for the employee to respond.
3. Consult with the affected employee(s) — explain the change, listen, consider their suggestions. Document everything.
4. Look honestly at redeployment. Is there any other role they could reasonably do, with or without retraining?
5. Confirm the decision in writing — termination date, notice period (or pay in lieu), redundancy pay if applicable, accrued leave, and the reason.
6. Pay everything owed on the final payslip — including any award entitlements like job-search leave during the notice period.

Common mistakes that turn a redundancy into an unfair dismissal

• Replacing the employee with a contractor doing the same work.
• Skipping consultation because "the decision was already made".
• Using "redundancy" as a softer label for a performance dismissal.
• Forgetting to count casuals or associated-entity employees when checking the 15-employee threshold.
• Paying only the NES minimum when the award sets a higher rate.

Get the answer for your specific situation

Every redundancy turns on the facts — the award, the contract, the headcount, the consultation history. My PocketHR gives Australian small business owners plain-English Fair Work answers in seconds, with the citations to back them up.

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