Severance Pay Australia 2025: Rules, Updates & Strategies

With economic uncertainty and shifting workforce trends, severance pay is a topic every Australian worker and employer should understand in 2025. Whether you’re facing redundancy or restructuring, knowing your rights and entitlements can make a critical difference to your financial wellbeing during a career transition.

What Is Severance Pay and Who Is Eligible?

Severance pay, often called ‘redundancy pay’, is a lump sum or series of payments provided to employees whose jobs are made redundant. In Australia, the National Employment Standards (NES) set the baseline for redundancy entitlements. While casuals, short-term contractors, and some small business employees are excluded, most permanent employees qualify under the Fair Work Act.

• Full-time and part-time employees (excluding casuals) are generally eligible after 12 months of continuous service.
• Small business exemption: Employers with fewer than 15 employees are not required to provide severance pay.
• Fixed-term contracts usually do not attract redundancy unless the contract is ended early due to redundancy.

In 2025, the Fair Work Commission reaffirmed these rules but increased scrutiny on sham redundancies and clarified protections for workers in evolving sectors like tech and renewable energy.

How Is Severance Pay Calculated in 2025?

Redundancy pay is calculated based on your base rate of pay for ordinary hours worked, not including bonuses, overtime, or allowances. The payout scale is set by the length of continuous service with your employer:

*Note: After 10 years, the entitlement decreases due to the way ‘long service’ is treated under the NES.

For example, if you’ve worked 7.5 years and earn $1,200 per week, your redundancy entitlement is 13 weeks x $1,200 = $15,600 (plus notice, accrued leave, and other entitlements).

2025 Policy Updates and Real-World Impacts

This year, several policy shifts are shaping the severance pay landscape:

• Fair Work Amendment (Redundancy Protections) Bill 2025: Tightens rules around ‘genuine redundancy’ and increases penalties for employers who avoid payouts via sham restructures.
• Industry-specific adjustments: Sectors facing automation and AI-driven job losses (e.g., banking, manufacturing) have seen government-backed transition programs, offering enhanced redundancy and retraining packages.
• Tax treatment: The ATO’s 2025 guidelines reaffirm that redundancy payments are tax-free up to a certain threshold (currently $11,985 plus $5,994 for each year of service), with amounts above taxed as Employment Termination Payments (ETP).

For example, when major banks announced branch closures in early 2025, thousands of affected staff received redundancy packages—many with additional outplacement support, in line with union-negotiated enterprise agreements.

Maximising Your Severance Pay: Practical Tips

If you’re facing redundancy, here’s how to make the most of your payout:

• Review your contract and enterprise agreement: Some agreements provide more generous terms than the NES minimums.
• Check for all entitlements: These may include notice in lieu, unused annual and long service leave, and superannuation contributions.
• Understand your tax-free limits: Consider timing your payment, as splitting across financial years can sometimes reduce tax liabilities.
• Seek professional help: For large payouts, get advice on investing or debt reduction to stretch your funds further during your job search.
• Use government resources: The Australian Government’s ‘Job Jumpstart’ and retraining programs can help turn a setback into a new opportunity.

Conclusion

Severance pay is more than a safety net—it’s a launchpad for your next chapter. In 2025, with new laws and evolving workplace trends, it’s crucial to know your entitlements, double-check your payout, and plan your next steps. If you’re affected by redundancy, take charge: understand your rights, seek support, and make your money work for you during transition.