A Practical HR Guide For Employee Termination in Australia
Your up-to-date guide for employee termination in Australia in a fair, legal and practical manner for international HR leaders and business owners.
This guide outlines the key rules for employee termination in Australia, the grounds and process for termination, minimum notice and pay in lieu, redundancy obligations, and unfair dismissal protections. For both international businesses operating in Australia and native Australian businesses, this article provides a comprehensive overview of how employment ends legally in Australia.
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Grounds for Employee Termination in Australia
Resignation by the Employee
Employees may resign voluntarily by giving the required notice stated in their contract or applicable award. Employers must confirm the final employment date in writing and process outstanding entitlements such as annual leave. If an employee leaves without proper notice, the employer may, in limited cases, deduct wages if permitted by the award or contract.
Employer-Initiated Dismissal
A dismissal is lawful only if the employer has a valid reason, follows fair procedure, and complies with all notice and payment obligations.
Common lawful grounds include:
a) Misconduct or Serious Misconduct
Misconduct covers breaches such as inappropriate behaviour or policy violations.
b) Poor Performance / Capability Issues
When employees fail to meet performance standards, termination is permitted only after a structured process:
- Clear communication of performance concerns
- Reasonable time and support to improve
- Documented warnings
A dismissal will be considered unfair if these steps are skipped.
c) Redundancy (Role No Longer Required)
A role is genuinely redundant when:
- The job is no longer needed,
- The organisation restructures, relocates, or changes operational needs, and
- Redeployment to a suitable alternative role was considered.
d) Illness, Medical Incapacity or Extended Absence
Employers may terminate when an employee is unable to perform the inherent requirements of the role, even after reasonable adjustments.
However:
- It is unlawful to dismiss someone because they are temporarily ill or injured.
- Employees on valid sick leave are protected for up to 3 months, or multiple absences totalling 3 months in 12 months.
Proper medical assessments are critical before considering dismissal.
e) End of Fixed-Term or Casual Employment
Fixed-term contracts expire automatically unless renewed.
Casual employees can be terminated with the notice required by their award or contract, unless they are “regular casuals” who may qualify for unfair dismissal protections.
Redundancy Rules and Entitlements
Redundancy in Australia occurs when an employee’s job is no longer required due to operational changes, not because of the employee’s performance. For a redundancy to be lawful under the Fair Work Act 2009, it must be genuine, meaning:
- The role itself is no longer needed,
- Reasonable attempts were made to redeploy the employee within the business or associated entities, and
- All consultation obligations in any Modern Award or Enterprise Agreement were followed.
Redundancies typically arise from:
- Restructuring or cost-reduction measures
- Relocation or changes in business operations
- Closure of a department, product line, or entire business
- Automation or digitisation of functions
Individual vs Collective Redundancies
Individual Redundancies
Most redundancies in Australia occur on an individual basis. Even where only one employee is affected, employers must still:
- Follow consultation procedures under the applicable Award or Enterprise Agreement
- Use objective and non-discriminatory selection criteria (if more than one role is potentially affected)
- Properly document the business reasons for redundancy
- Explore redeployment options thoroughly
- Calculate notice and redundancy pay accurately
A redundancy affecting one employee is treated with the same legal seriousness as larger downsizing exercises.
Collective or Large-Scale Redundancies
Australia does not have an EU-style “collective redundancy” regime, but additional statutory obligations apply when 15 or more employees are terminated due to redundancy.
In these cases, employers must:
- Notify Services Australia (formerly Centrelink) in writing, as required under section 530 of the Fair Work Act before the proposed dismissals occur
- Provide information on the number of employees affected, the expected/proposed timing, and the reasons for redundancy
- Continue to meet all Award/Enterprise Agreement consultation requirements
- Keep detailed records of meetings, selection processes, and redeployment efforts
Failure to notify may result in civil penalties. In practice:
- If only one or a handful of roles are eliminated, then individual redundancy rules apply.
- If 15 or more employees are affected, then employers must follow general redundancy rules + mandatory government notification.
Consultation Requirements (Awards and Enterprise Agreements)
Most Modern Awards and Enterprise Agreements require employers to consult employees before finalising redundancies. This generally includes:
Explaining the proposed changes and reasons
Discussing the likely impact on employees
Considering employee feedback
Exploring options to minimise job losses
Assessing redeployment opportunities
A redundancy may be deemed unlawful if consultation requirements are not followed, even if the role is genuinely no longer required.
Redundancy Pay (National Employment Standards)
| Years of Service | Redundancy Pay |
|---|---|
| 1 – 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* |
*There is a reduction in redundancy pay from 16 weeks to 12 weeks for employees with at least 10 years continuous service. This is consistent with the 2004 Redundancy Case decision made by the Australian Industrial Relations Commission.
Exclusions From Redundancy Pay
Redundancy pay does not apply to:
Small business employers with fewer than 15 employees
Casual employees
Employees with less than 12 months of service
Apprentices
Fixed-term employees whose contract expires naturally
Employees who reject reasonable redeployment
Employees dismissed for serious misconduct
Some states have separate provisions for certain public sector roles.
Small Business Rules
Under the Small Business Fair Dismissal Code, a small business is defined as any business that employs less than 15 staff, including casual staff employed on a regular and systematic basis and employees of any associated entities of the employer. Small businesses are exempt from redundancy pay, but redundancies must still be genuine and consistent with the Small Business Fair Dismissal Code. Documentation and a clear process remain essential.
Redeployment Obligations
Before finalising any redundancy, employers must make genuine efforts to identify suitable alternative roles:
Within the same business
Within associated entities (including overseas subsidiaries, where appropriate)
With similar duties, remuneration, and location
Failure to explore redeployment can expose employers to unfair dismissal claims, even where a redundancy appears justified.
Severance Pay vs Redundancy Pay
Australia distinguishes between:
- Statutory redundancy pay – required under the NES (National Employment Standards)
- Severance pay – additional compensation offered through contracts, enterprise agreements, or at the employer’s discretion
Additional severance is often used to support employee transition or reduce legal risk in complex restructuring situations.
Unfair Dismissal and General Protections Claims
Australia provides strong protections to ensure that employees are not dismissed harshly, unjustly, or for unlawful reasons. These protections sit under two main frameworks:
Unfair dismissal (Fair Work Act Part 3-2)
General protections / adverse action claims (Fair Work Act Part 3-1)
Each operates differently, and employees may be eligible for one or both.
Unfair Dismissal
Employees can lodge an unfair dismissal claim with the Fair Work Commission (FWC) if they believe the termination was harsh, unjust, or unreasonable.
A dismissal may be considered unfair if:
- No valid reason related to conduct or capability existed
- The investigation or process was flawed
- The employee was not given a chance to respond
- The punishment (dismissal) was disproportionate
- The dismissal was procedurally unfair despite a valid reason
The FWC examines both the reason and the process.
Eligibility for Unfair Dismissal
An employee must:
- Have completed at least 6 months’ service, or 12 months if the employer is a small business (fewer than 15 employees)
- Earn less than the high income threshold (From 1 July 2025 the Fair Work Commission’s high-income threshold is AUD $183,100 per annum), unless they are covered by an award or enterprise agreement and the employee does not has a valid, written guarantee of annual earnings that is for an amount greater than the high-income threshold
- Not be a contractor, casual without regular and systematic work, or someone terminated for genuine redundancy
Small Business Fair Dismissal Code
Small employers may rely on this Code to defend a dismissal if they can show they followed its simplified steps, particularly in misconduct or redundancy situations.
Possible Outcomes
If the FWC finds the dismissal was unfair, it may order:
- Reinstatement, or
- Compensation, capped at 26 weeks’ pay or half threshold*.
*The maximum compensation the Fair Work Commission may award for unfair dismissal is the lesser of 26 weeks’ ordinary pay or half the high-income threshold immediately before dismissal. For dismissals on or after 1 July 2025 the statutory compensation cap (half the High Income Threshold) is AUD $91,550
General Protections (Adverse Action) Claims
General protections claims relate to dismissals that occur for prohibited reasons, such as:
- Exercising a workplace right (e.g., filing a complaint)
- Temporary illness or injury
- Discrimination (race, gender, disability, age, family status, pregnancy, religion, etc.)
- Union involvement
- Whistleblowing
- Taking leave entitlements
- Refusing unlawful directions
These claims are broader than unfair dismissal, an employee does not need minimum service and even high-income earners can file.
Why General Protections Claims Are Serious
The burden of proof shifts to the employer. You must demonstrate the dismissal was not for a prohibited reason.
Penalties include:
- Uncapped compensation
- Civil penalties
- Reinstatement orders
These claims carry significantly higher legal risk compared to unfair dismissal.
What Employers Should Document
To reduce exposure to claims, employers should ensure they have:
Clear evidence of performance or misconduct issues
Investigation records
Copies of warnings, meeting notes, and timelines
Consideration of redeployment (if redundancy is involved)
Compliance with award/enterprise agreement procedures
Proper notice and final pay calculations
A well-documented process is one of the strongest defences before the FWC.
Minimum Notice Periods and Pay in Lieu
When employment ends at the employer’s initiative (except for serious misconduct), the Fair Work Act requires employers to provide minimum notice or pay the employee in lieu of notice.
Statutory Minimum Notice (Fair Work Act)
| Length of Service | Minimum Notice Period |
|---|---|
| 1 year or less | 1 week |
| More than 1 year – 3 years | 2 weeks |
| More than 3 years – 5 years | 3 weeks |
| More than 5 years | 4 weeks |
Employees aged 45 or older who have completed at least 2 years of continuous service receive an extra week of notice.
These are the legal minimums. Some Modern Awards, enterprise agreements, or employment contracts provide longer notice periods, particularly for senior or specialised roles.
Pay in Lieu of Notice (PILON)
Instead of requiring an employee to work through their notice period, employers may choose to:
Pay the full value of the notice period, and
End employment immediately.
PILON covers:
Base pay for the notice period
Allowances and regular loadings
Any applicable award-based components
Superannuation generally does not need to be paid on notice in lieu, unless the contract or agreement states otherwise.
Garden Leave
Many contracts permit employers to place an employee on garden leave during their notice period.
During this time the employee:
Remains employed
Continues to receive normal pay
Must be available for work
May be restricted from joining a competitor or contacting clients
Garden leave is widely used for senior employees or in roles involving confidential information.
Notice Does Not Apply in All Situations
No notice is required:
- For serious misconduct (summary dismissal)
- When a fixed-term contract reaches its end
- When a casual employee finishes a shift or engagement
- If the employee resigns without notice
Where an employee resigns without giving the required notice, employers may deduct wages only if the contract or award expressly allows it.
Final Pay, Entitlements and Record-Keeping Requirements
When employment ends in Australia, employers must ensure that all outstanding payments and statutory obligations are completed accurately and promptly. Errors or delays in final pay are a common source of Fair Work complaints and can expose employers to penalties, underpayment claims, and interest charges.
Final Pay Obligations
Under the Fair Work Act 2009, final pay must include all outstanding entitlements up to the last day of employment. These typically include:
- Outstanding wages up to the final day worked
- Accrued but unused annual leave, paid at the employee’s base rate
- Leave loading, if applicable under the Modern Award or enterprise agreement
- Redundancy pay, where applicable
- Payment in lieu of notice (if the employer opts for PILON)
- Long service leave, depending on state or territory laws and length of service
- Unpaid allowances, commissions, or bonuses (depending on contract and performance criteria)
Although the Fair Work Act does not specify a strict deadline, most awards and enterprise agreements require final pay to be made within 7 days or on the next scheduled payday. Fair Work Ombudsman guidance supports prompt payment, and delays often trigger disputes. Check the applicable Modern Award or enterprise agreement for exact timing.
Long Service Leave Rules (State-Based)
Long service leave entitlements differ by state and territory. As of 2025:
Employees generally qualify after 7 to 10 years of continuous service.
Most jurisdictions require payment of pro-rata long service leave if employment ends due to redundancy, illness, or other special circumstances.
As these rules vary, employers must check the relevant state or territory legislation.
Accrued Personal/Carer’s Leave
Unused personal (sick) leave is not paid out on termination, unless the enterprise agreement or contract explicitly allows it, which is uncommon.
Superannuation on Termination Payments
Superannuation is generally payable on:
- Outstanding wages
- Allowance components
- Rostered hours of work
- Leave taken (e.g., annual leave already taken, not unused leave)
Superannuation is not usually paid on:
Payment in lieu of notice
Unused annual leave
Redundancy pay
Severance pay
Enterprise agreements or contractual terms can require additional super contributions in some cases.
Providing Employment Records
Under Fair Work Regulations, employers must keep records for 7 years, including:
- Time worked and wages paid
- Leave balances
- Termination date and method of termination
- Calculations showing how final pay was determined
Upon termination, employers must also provide:
- A payslip for the final pay period
- A Separation Certificate (if requested, often required for Services Australia/benefits)
Tax Treatment of Termination Payments
Termination payments fall into several tax categories:
Unused annual leave – taxed at a concessional rate
Genuine redundancy payments – tax-free up to a threshold based on age and years of service
Employment Termination Payments (ETPs) – taxed according to government thresholds and whether the employee meets preservation age
How Beyond Borders HR Can Help
Ending employment in Australia requires careful adherence to Fair Work rules, award obligations, consultation requirements, and strict procedural fairness. Even small errors, such as miscalculating entitlements, skipping consultation steps, or mishandling a performance issue, can lead to unfair dismissal claims, underpayment disputes, or penalties from the Fair Work Ombudsman.
At Beyond Borders HR, we help international organisations navigate these challenges with clarity and confidence.
Our team supports you through the full lifecycle of employee offboarding, including:
Compliance reviews to ensure your processes align with the Fair Work Act, Modern Awards, and the National Employment Standards.
Case-specific guidance on redundancy, capability dismissals, serious misconduct, and contract non-renewals.
Drafting and documentation, including notice letters, performance warnings, investigation records, and redundancy consultation materials.
Complex cross-border coordination, ensuring that global HR policies align with Australian employment law requirements.
Risk mitigation strategies, helping employers prevent disputes and respond effectively to unfair dismissal or general protections claims.
Our role is to simplify complex regulation and provide practical, business-focused solutions that protect both your organisation and your people.
Whether you’re managing a restructuring process, a performance issue, or an individual exit, Beyond Borders HR is your trusted partner for compliant and well-managed terminations across Australia.
Need help handling Australian dismissals with confidence? Chat to Beyond Borders HR for expert guidance.
