If you employ fewer than 15 people, the short answer is usually no, you don't have to pay redundancy pay. But that's not the same as having no obligations at all, and getting this wrong is one of the easiest ways to end up with an unfair dismissal claim on your hands.
Here's what the rules actually say, and what you still need to do even when redundancy pay doesn't apply.
What counts as a small business for this purpose
Under the Fair Work Act, you're a small business for redundancy purposes if you have fewer than 15 employees at the time of the dismissal. That count includes casual staff who work regular and systematic hours, not just your full timers. It's a simple headcount, not a full time equivalent calculation, so it catches more businesses than people expect. The Fair Work Ombudsman sets this out in full on their redundancy page.
The exemption, and what it doesn't cover
The exemption and official resources
If you meet that headcount, section 121 of the Fair Work Act exempts you from paying redundancy pay. That's a real cost saving, and worth knowing. The Ombudsman has a straightforward explainer on who doesn't get redundancy pay and a general page on redundancy pay if you want the detail behind the numbers.
What it doesn't exempt you from
What it doesn't exempt you from:
Notice of termination. You still need to give the correct notice period, or pay in lieu of it, based on the employee's length of service.
Final entitlements. Any accrued annual leave, and other amounts owed, still need to be paid out in full.
A genuine process. This is where most small businesses come unstuck. The redundancy has to be genuine, meaning the role itself is no longer needed, not just a way to move someone on. If you haven't followed a proper process and the employee challenges it, the redundancy pay exemption won't protect you from an unfair dismissal claim.
The process that keeps you protected
The Small Business Fair Dismissal Code exists for exactly this situation, and it's covered on the Fair Work Ombudsman's unfair dismissal page. If you follow it, the Fair Work Commission will generally find the dismissal was fair, even without redundancy pay changing hands. In practice, that means being able to show you told the employee what was happening, gave them a chance to respond if relevant, and kept some record of the decision and why the role was genuinely no longer required.
If the change also affects other employees, or you're restructuring more broadly, you may have consultation obligations under an award or enterprise agreement. Worth checking before you have the conversation, not after.
The bit business owners usually get wrong
The most common mistake isn't the money. It's treating "small business, so I don't have to pay redundancy" as "small business, so I can just let someone go." Those are two different things. The pay exemption is real. The obligation to do it properly is not optional, regardless of your size.
If you're not sure where you stand
Every situation is a little different, and the cost of getting the process wrong goes well beyond a claim. There's the time it takes and the stress of it, but there's also what it does to your team, who are watching how the business handles it and drawing their own conclusions about whether they can trust you to treat people fairly when it counts. And there's the impact on the person going through it, who deserves a process run properly, not one shaped by how rushed or uncomfortable the conversation feels for you. Add all of that up and it's usually far more costly than the redundancy pay you were trying to avoid. If you're about to make a role redundant and want a second set of eyes on the process before you have the conversation, that's exactly the kind of thing we help with.
Book a free consultation or get in touch at hello@happyhumans.com.au.
Disclaimer
This article is general information only. It doesn't take into account your specific circumstances and isn't a substitute for professional legal or HR advice. We make every effort to keep our Insights accurate and current, but award rates and Fair Work Commission decisions can change, and we can't guarantee this information is complete or up to date at the time you're reading it. Nothing on this page should be relied on as legal advice, and nothing here forms part of a professional engagement with happy humans.