When Australian small businesses hit real pressure, roughly 44% say the first thing they would do is let someone go. Ahead of trimming the product range. Ahead of auditing software. Far ahead of touching price.
You can see the result in the national numbers: businesses with 1–4 employees have fallen by nearly 39,000 since 2021-22, while non-employing sole traders grew 4.3% in a single year. Businesses are not disappearing. They are shedding staff and reverting to solo operation.
This page is not an argument that redundancy is always wrong. Sometimes it is exactly right, and there is a section below on how to tell. It is an argument that it should be the last thing you work through, not the first — because it is the only one on this list you cannot undo.
What a redundancy actually saves
The instinct says: remove an $85,000 salary, save $85,000.
The arithmetic says otherwise.
| Line | Effect |
|---|---|
| Base salary | +$85,000 |
| Superannuation at 12% | +$10,200 |
| Payroll tax, workers comp | +$6,000 (varies) |
| Gross saving | +$101,200 |
| Redundancy pay (4–16 weeks by tenure) | −$6,500 to −$26,000 |
| Notice period | −$6,500 to −$8,000 |
| Accrued leave payout | −$5,000 to −$12,000 |
| Lost output — the revenue they produced or enabled | −??? |
| Remaining team absorbing the work badly | −productivity |
| Rehiring when conditions turn | −$8,000 to −$20,000 |
| Institutional knowledge that walks out | −unquantified |
Year one is frequently net negative. The saving only becomes real in year two, and only if you do not rehire.
And the line that matters most has no number in it: lost output. Most redundancies are modelled as though the person produced nothing. If that were true you would have removed the role years ago.
The most common failure is removing 20% of capacity while still budgeting 100% of last year’s revenue. The gap gets closed by the owner working more hours — which is not a saving. It is a transfer from your life to the P&L.
Five things that come first
1. Find out which work actually makes money
Not which line has the most revenue. Which has the most profit once real cost and a fair share of overhead are allocated.
Most businesses running this for the first time discover at least one service line or major client losing money outright. Fixing that is usually worth more than a redundancy and it costs you no capacity.
If you are cutting people while still selling work that loses money, you are solving the wrong problem in the most expensive way available.
→ Gross margin by service line
2. Test where you have pricing power
On a $1m business at 10% net margin, a 5% price rise adds about $50,000 with essentially no additional cost. That is more than half a salary, from one decision.
Move where the room is: new customers who have no reference price, specialised or urgent work, anything you have not repriced since 2023. Not a uniform increase across everyone.
The reason this ranks below redundancy in most owners’ instincts is not economics. It is that a price conversation with a customer feels harder than a redundancy conversation with an employee. That is worth sitting with honestly.
→ How to raise prices without losing customers
3. Audit the subscriptions
Between 25% and 30% of SaaS licences go unused or significantly underused. On a $50,000 software budget that is $12,500 to $15,000 a year, recoverable in an afternoon with a bank statement and a filter.
It will not save a whole salary. It buys you a quarter to do the harder work properly, and it is the only item on this list with genuinely zero downside.
4. Check whether this is a cash problem wearing a profit costume
A great many “we cannot afford this person” conclusions are actually “we cannot afford this person this month.”
Australian small businesses are paid in an average of 24.1 days, with invoices settled 6.9 days late — roughly 31 days invoice to cash. Payday Super, live since 1 July 2026, moved superannuation from quarterly to every pay run, compressing the cycle by up to three months.
If the business is profitable but the timing is broken, a redundancy does not fix it. It just makes you smaller and still short in the same week next quarter.
Shortening collections from 31 days to 21 permanently releases about a third of a month’s revenue. For most businesses that is more than the shortfall.
→ Business cash flow in Australia
5. Move the work, not the person
If a role genuinely costs more than the value it produces, three questions come before removing the human doing it:
Is the work worth doing at all? Some roles exist to service processes that themselves stopped being useful.
Can it be systemised? Documented, templated, automated. The task that justifies a role is often 60% repeatable and 40% judgement.
Can it be done by a different resource? An Australian admin role costs $55,000–$70,000 before on-costs. The offshore equivalent runs $400–$1,200 a month. That is not the answer for every role, and it fails badly when done carelessly — but most owners have never seriously priced it.
→ Offshore vs local hire: the full comparison
When redundancy is the right answer
Sometimes it is. Be honest about which situation you are actually in.
The work has genuinely gone. A client segment, a service line, a channel that is not coming back. The role was built for demand that no longer exists.
The role was built for a scale you no longer have. You hired for the trajectory you expected. The trajectory changed. This is not a failure of the person.
You have worked levers one through five and the gap remains. Then it is a real decision, made on real information, and you can explain it to yourself and to them.
Performance is the issue. In which case this is a performance conversation, not a redundancy — and treating it as redundancy is both more expensive and legally riskier.
If you do proceed
Get the process right. Australian redundancy has specific obligations and the cost of getting it wrong substantially exceeds the cost of getting advice.
Genuine redundancy means the role is no longer required — not the person. If you backfill within months, it was not a redundancy.
Consultation obligations apply under most modern awards and enterprise agreements. Skipping them is one of the most common unfair dismissal findings.
Redeployment must be genuinely considered where a suitable role exists in the business or an associated entity.
Notice and severance are set by the NES and scale with tenure. Small business employers (fewer than 15 staff) have different severance obligations — check your position rather than assuming.
Talk to an employment lawyer or your industry association before the conversation, not after.
The one thing worth remembering
Levers one through five compound. A pricing structure that holds keeps paying every year. A documented system keeps paying after the person who wrote it leaves. A shorter cash cycle keeps releasing capital.
A redundancy does not compound. You can do it once, maybe twice. Then there is nothing left to cut, the underlying problem is still there, and you have less business left to fix it with.
That is the difference between a business that survives a squeeze and one that gets smaller every time one arrives.
Where to go next
- 44% of Australian Businesses Cut the Wrong Thing First — the evidence
- The Profit Lever Hierarchy — all nine levers, ranked
- Profit Lever Diagnostic — six questions, find your actual constraint
- The True Cost of an Employee
- Can You Afford to Hire?
Sources: ABS Counts of Australian Businesses, July 2021 – June 2025; ASBFEO Small Business Data Portal, March quarter 2026; industry SaaS utilisation research; Fair Work Act National Employment Standards. Worked figures are illustrative. This is general information, not legal or financial advice — obtain advice specific to your circumstances before terminating employment.