With ongoing changes in the Australian workforce, understanding severance pay is essential for both employees and employers in 2026. Whether you are navigating redundancy, restructuring, or industry shifts, knowing your rights and entitlements can help you manage your finances and plan your next steps with confidence.
What Is Severance Pay?
Severance pay, also known as redundancy pay, is a financial payment provided to employees whose roles are made redundant. In Australia, the National Employment Standards (NES) outline the minimum entitlements for redundancy pay, ensuring eligible workers receive support when their employment ends due to genuine redundancy.
Severance pay is designed to help employees transition to new employment or manage financial commitments during a period of change. It is separate from other entitlements such as notice periods, accrued leave, or superannuation.
Who Is Eligible for Severance Pay?
Eligibility for severance pay in Australia is determined by several factors:
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Employment type: Most full-time and part-time employees are eligible for redundancy pay if they have completed at least 12 months of continuous service. Casual employees are generally excluded.
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Small business exemption: Employers with fewer than 15 employees are not required to provide redundancy pay under the NES.
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Fixed-term contracts: Employees on fixed-term contracts may not be entitled to redundancy pay unless the contract is ended early due to redundancy.
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Other exclusions: Some categories, such as short-term contractors and apprentices, may also be excluded from redundancy pay entitlements.
It is important to check your employment contract and any applicable enterprise agreement, as these may provide additional benefits beyond the NES minimums.
How Is Severance Pay Calculated?
Redundancy pay is calculated based on your ordinary base rate of pay for your regular hours of work. It does not include bonuses, overtime, or allowances. The amount you receive depends on your length of continuous service with your employer.
The following table outlines the minimum redundancy pay entitlements under the NES:
| Years of Service | Weeks of Pay |
|---|---|
| At least 1 year, less than 2 years | 4 weeks |
| 2–3 years | 6 weeks |
| 3–4 years | 7 weeks |
| 4–5 years | 8 weeks |
| 5–6 years | 10 weeks |
| 6–7 years | 11 weeks |
| 7–8 years | 13 weeks |
| 8–9 years | 14 weeks |
| 9–10 years | 16 weeks |
| 10+ years | 12 weeks* |
*Note: After 10 years of service, the entitlement may decrease due to the way long service is treated under the NES.
Example:
If you have worked for your employer for 7.5 years and your base weekly pay is $1,200, your minimum redundancy entitlement would be 13 weeks x $1,200 = $15,600. This is in addition to any notice period, accrued leave, or other entitlements you may be owed.
Recent Developments in 2026
In 2026, there have been some notable developments affecting severance pay in Australia:
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Focus on genuine redundancy: There is increased scrutiny on ensuring redundancies are genuine, with authorities paying closer attention to avoid sham restructures that attempt to bypass redundancy entitlements.
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Industry changes: Sectors undergoing significant transformation, such as technology and manufacturing, have seen more attention to redundancy processes and support for affected workers.
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Tax treatment: The Australian Taxation Office (ATO) continues to provide guidance on the tax treatment of redundancy payments. Generally, a portion of a genuine redundancy payment is tax-free up to a certain threshold, with amounts above this taxed as Employment Termination Payments (ETP). The specific tax-free limits are updated periodically, so it is important to check the current thresholds or seek professional advice.
What to Do If You’re Facing Redundancy
If you are notified of redundancy, there are several steps you can take to ensure you receive your full entitlements and make the most of your payout:
1. Review Your Employment Contract and Agreement
Check your contract and any enterprise agreement for terms that may provide more generous redundancy pay or additional benefits beyond the NES minimums.
2. Confirm All Entitlements
Redundancy pay is only one part of your final payout. You may also be entitled to:
- Payment in lieu of notice
- Accrued but unused annual leave
- Long service leave (if eligible)
- Superannuation contributions
3. Understand Tax Implications
Redundancy payments may have both tax-free and taxable components. Consider the timing of your payment, as splitting payments across financial years can sometimes affect your tax liability. For complex situations or large payouts, consider seeking advice from a qualified financial professional.
4. Seek Support and Advice
If you are unsure about your entitlements or how to manage your payout, you can seek assistance from:
- Your union or employee representative
- The Fair Work Ombudsman
- Financial advisers
5. Explore Government and Community Resources
Government programs and community services can provide support with job searching, retraining, and financial planning. For more information on financial support and planning, visit [/finance].
Practical Tips for Making the Most of Severance Pay
- Budget carefully: Plan your expenses to ensure your payout lasts while you search for new work or retrain.
- Consider your superannuation: Check if any superannuation contributions are included in your payout and review your retirement savings.
- Look into retraining opportunities: Redundancy can be an opportunity to upskill or change careers. Many government and industry programs offer support for retraining.
- Protect your insurance: If you have personal insurance policies, such as income protection, review your coverage and speak with an adviser if needed. More information is available at [/insurance/personal/insurance-brokers].
Conclusion
Severance pay is a vital support for Australian workers experiencing redundancy in 2026. By understanding your rights, checking your entitlements, and seeking the right advice, you can better manage your finances and prepare for your next career move. If you are affected by redundancy, take proactive steps to secure your financial wellbeing and explore the opportunities that may arise from change.