Redundancy in a small business with fewer than 15 employees

By Stefan Savva, Founder · Checked against the Fair Work Ombudsman and the Fair Work Commission on 28 October 2026 · 6 min read

If you employ fewer than 15 people when you give notice, you usually do not have to pay redundancy pay under the National Employment Standards. Almost everything else still applies: the redundancy must be genuine, you must follow any consultation clause in the award, you must give notice or pay instead of notice, and you must pay out wages and unused annual leave. The exemption is narrower than many owners think, so count your staff carefully before you rely on it.

This guide explains how to count, what the exemption covers, what it does not, and where an award or agreement can change the answer. It is general information, not legal advice.

How to count your employees

For redundancy pay, a small business employer has fewer than 15 employees at the time it gives notice (Fair Work Ombudsman). The count is a headcount, not full-time equivalents, and it includes:

every employee employed at that time, full-time or part-time
casuals, but only those employed on a regular and systematic basis
the employee you are making redundant, and anyone else being dismissed at the same time
employees of associated entities, such as related companies, which are counted as one business

That last point catches many owners. If you run two companies that are associated entities, add their staff together. The rule sits in section 23 of the Fair Work Act 2009.

Worked example: you have 11 permanent staff, 3 regular casuals who work set shifts every week, and 2 occasional casuals who fill in a few times a year. You count 14, so you are a small business. Hire one more permanent employee before giving notice and you count 15, and redundancy pay applies to everyone you make redundant.

What the exemption covers

The small business exemption removes one entitlement: redundancy pay under the National Employment Standards (section 121 of the Fair Work Act). For a business with 15 or more employees, that pay is set by length of continuous service, at the person's base rate for ordinary hours:

Redundancy pay (National Employment Standards)
Continuous service	Redundancy 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

There is one exception within the exception. If a business that was larger shrinks below 15 because of insolvency or bankruptcy, redundancy pay may still be owed in some situations. The fact sheet explains when.

What still applies

Everything below applies to a small business exactly as it does to a large one.

Notice of termination. Give written notice of 1 to 4 weeks depending on continuous service, plus 1 week for anyone over 45 with 2 or more years of service. You can pay instead of notice, at the person's full rate of pay.

Final pay. Pay outstanding wages, unused annual leave and leave loading where it applies, and long service leave where state or territory law gives it. Sick and carer's leave is not paid out (Fair Work Ombudsman).

Consultation. If the person is covered by a modern award with a consultation clause, you must consult before the dismissal. Being small does not remove that duty.

A genuine redundancy. The job must no longer be needed, consultation must be done, and you must have considered redeployment, including into any related business (Fair Work Commission). Our guide to genuine redundancy covers each test.

Protected reasons. You cannot choose who goes because of age, pregnancy, disability, carer duties, union membership or a complaint they made. These rules apply to every employer.

Check your award and agreement

An award or enterprise agreement can give more than the National Employment Standards, and the exemption only removes the National Employment Standards entitlement. Some enterprise agreements, employment contracts and written company policies promise redundancy pay regardless of the size of the business. Read the award that covers each person and their contract before you decide nothing is owed. If a contract or policy promises redundancy pay, you must honour it.

Unfair dismissal and the Small Business Fair Dismissal Code

Small businesses have their own unfair dismissal settings. An employee of a business with fewer than 15 employees generally needs 12 months of service, rather than 6, before they can claim (Fair Work Ombudsman). The Small Business Fair Dismissal Code also applies. Under the Code, a dismissal that is a genuine redundancy is not unfair.

So the practical rule is the same as for a large business: if the redundancy is genuine and you can show it, a claim is unlikely to succeed. Keep notes of your reasons, your consultation and the other roles you considered.

Common mistakes

Counting full-time equivalents. Two part-timers are two employees, not one.
Forgetting the person leaving. They count, and so does anyone else being dismissed at the same time.
Ignoring a related company. Associated entities are counted together.
Skipping notice. The exemption covers redundancy pay only; notice is still owed.
Hiring into the role. If you replace the person soon after, the redundancy was not genuine.

Doing it well with a small team

In a small business, everyone knows everyone. The person leaving may have worked beside you for years, and the people who stay will watch how it is handled. A few things help:

Tell the person yourself, privately, before anyone else knows.
Give them the letter the same day, with the dates and amounts in writing.
Offer time off during notice to look for work, and a reference.
Tell the rest of the team the same day, plainly, and say what changes for them.

Paying for help with their next role is one of the clearest ways to show the decision was about the business, not the person. A small business can rarely afford a large outplacement programme, which is why Changing Careers charges A$599 per person, with no minimum number of people.

Common questions

Does a small business have to pay redundancy pay?

An employer with fewer than 15 employees when it gives notice is usually exempt from redundancy pay under the National Employment Standards, although an award, agreement, contract or company policy can still require it.

Who counts toward the 15 employee threshold?

The count is a headcount, not full-time equivalents. It includes every full-time and part-time employee, regular and systematic casuals, the people being dismissed, and the staff of any associated entity.

Does a small business still have to give notice?

A small business must still give written notice of 1 to 4 weeks depending on service, plus 1 week for anyone over 45 with 2 or more years, or pay instead of notice at the full rate of pay.

Can a small business face an unfair dismissal claim over a redundancy?

An employee of a business with fewer than 15 employees generally needs 12 months of service to claim unfair dismissal, and under the Small Business Fair Dismissal Code a genuine redundancy is not unfair.