How to Dismiss an Employee Legally (Small Business)

You can dismiss an employee legally if you have a valid reason, you follow a fair process, and you give the right notice and final pay. For a business with fewer than 15 employees, the process is spelled out in the Small Business Fair Dismissal Code — follow it and the Fair Work Commission will treat the dismissal as fair. Get the process wrong and the reason won't save you, because most unfair dismissal cases are lost on procedure, not on merit.

Are you actually a small business employer?

This matters more than anything else on the page, because it decides which rules apply. A small business employer employs fewer than 15 employees at the time of the dismissal. Count carefully:

• It's a simple headcount, not full-time equivalents. Three people working one day a week count as three, not 0.6.
• Casuals only count if they're employed on a regular and systematic basis. A once-a-year fill-in doesn't count; someone rostered most weeks does. If you're unsure how your casuals are classed, our guide on casual, part-time and full-time employment walks through the difference.
• Associated entities count as one employer. Two companies you control with eight staff each is a 16-employee business.
• You count the employee you're dismissing, plus anyone else being dismissed at the same time.

Fourteen employees plus the person you're letting go equals 15, and you're no longer a small business employer for that dismissal. Do the count on paper before you do anything else.

The minimum employment period

Employees can't lodge an unfair dismissal claim until they've served a minimum employment period: 12 months if you're a small business employer, 6 months if you're not. Inside that window, you don't need to follow the Code at all — an unfair dismissal claim simply can't be made.

That's not a free pass. Three things still apply from the employee's first day:

• General protections. You can't take adverse action against someone because they exercised a workplace right (asking about pay, lodging a complaint, taking sick leave), because of their union membership, or because of a protected attribute such as race, sex, age, disability, pregnancy or carer's responsibilities.
• Anti-discrimination law in your state or territory.
• Notice and final pay. These are National Employment Standards entitlements and there's no probation exemption. A "three-month probation" clause in a contract doesn't remove them.

Regular and systematic casual service counts towards the minimum employment period if the casual had a reasonable expectation of continuing work.

The Small Business Fair Dismissal Code

The Code splits dismissals into two paths.

Summary dismissal for serious misconduct

You can dismiss without notice or warning when you believe on reasonable grounds that the conduct is serious enough to justify immediate dismissal. Serious misconduct includes theft, fraud, violence, sexual harassment, serious breaches of work health and safety procedures, refusing a lawful and reasonable instruction, and conduct that causes a serious and imminent risk to a person's health and safety or to the reputation or viability of your business.

"Reasonable grounds" is where small employers come unstuck. The Commission will ask what enquiries you made. That means: gather the evidence, put the specific allegation to the employee, give them a genuine chance to respond, consider what they say, then decide. Do it the same day if you like — but do it. If the conduct is serious enough, you can suspend the employee on pay while you investigate. Where you reasonably suspect a crime, report it to the police.

Every other dismissal

For conduct or performance that isn't serious misconduct, the Code requires you to:

1. Give the employee a valid reason why they're at risk of being dismissed, based on their conduct or their capacity to do the job.
2. Warn them — verbally, but preferably in writing — that they risk dismissal if there's no improvement.
3. Give them an opportunity to respond to the warning.
4. Give them a reasonable chance to fix the problem, taking their response into account. That might mean training, more supervision, a clearer set of expectations or simply time.

There's no required number of warnings. What matters is that the reason is real, the employee knew their job was on the line, and they had a fair shot at turning it around.

Procedural matters

If the employee asks to bring a support person to any discussion where dismissal is possible, you must allow it — unless that person is a lawyer acting in a professional capacity. An unreasonable refusal is one of the matters the Commission must weigh when deciding whether a dismissal was unfair, and for a small business it means the Code hasn't been followed.

Fill in the Small Business Fair Dismissal Code Checklist (free from the Fair Work Ombudsman) at the time of the dismissal and keep it with your employee records. You're not legally required to complete it, but it's the single most useful document you can produce if a claim lands.

Notice and final pay

Notice of termination must be given in writing and must state the day employment ends. Handing it over in person, posting it to the employee's last known address or emailing it to the address they use for work are all accepted — keep proof either way.

Add one extra week if the employee is over 45 and has at least 2 years of continuous service. Your modern award or the employment contract may require longer — the longer period wins. Casuals get no notice. Summary dismissal for serious misconduct requires no notice.

You can have the employee work out the notice period or pay it out in lieu. Paying it out is common when someone's remaining in the workplace would be awkward, but you must pay at least what they'd have earned working their ordinary hours for the full period.

Worked example: a final pay

Dana is a full-time cafe supervisor, aged 32, who started on 14 March 2023 and finishes on 30 September 2026 — 3 years and 6 months of service, so 3 weeks' notice, paid out rather than worked. She's paid $28.00 an hour for a 38-hour week ($1,064.00 a week), has 62 hours of accrued annual leave, and has worked 22 hours in the final part-pay-period.

Super is 12% of qualifying earnings. Outstanding wages and payment in lieu of notice are qualifying earnings; unused annual leave isn't. So super is 12% of $3,808.00 = $456.96, and under payday super it has to reach Dana's fund within 7 business days of the payment.

Unused sick leave is never paid out. Long service leave depends on your state — at 3.5 years Dana hasn't reached it anywhere. Most awards require final pay within 7 days of the last day, and National Employment Standards entitlements such as annual leave should be paid on the final day. Check what else is owed against our leave entitlements guide.

Redundancy is a different thing

A redundancy isn't a dismissal for conduct or performance — the job itself goes. To be a genuine redundancy (and therefore immune from an unfair dismissal claim), all three of these must be true:

1. You no longer need anyone to do that job because of changes in how the business operates.
2. You've complied with any consultation obligation in the applicable award or enterprise agreement. Almost every modern award has one, and skipping it is the most common way a redundancy stops being "genuine".
3. It wouldn't have been reasonable to redeploy the person elsewhere in your business or an associated entity, including after reasonable retraining.

Small business employers with fewer than 15 employees don't have to pay redundancy pay under the National Employment Standards. Notice still applies in full. Two catches: a handful of awards and plenty of contracts promise redundancy pay regardless, and a larger employer that drops below 15 employees because of insolvency can't rely on the exemption.

If a claim lands

An employee has 21 days from the day after the dismissal takes effect to lodge an unfair dismissal application with the Fair Work Commission. Extensions are granted only in exceptional circumstances. The application fee is $92.70 (as at September 2026) and can be waived for financial hardship.

Most matters go to a telephone conciliation before any hearing. If a dismissal is found unfair, the primary remedy is reinstatement; where that's impractical, compensation is capped at the lesser of 26 weeks' pay or $95,050 for dismissals on or after 1 July 2026. Employees earning over the high income threshold of $190,100 can't claim unfair dismissal at all unless a modern award or enterprise agreement covers them (both figures as at September 2026).

A general protections claim is the one to worry about more. It also has a 21-day window where a dismissal is involved, but there's no cap on compensation and civil penalties can be ordered on top. That's why the reason for a dismissal must never be one of the protected ones.

Whatever happens, your defence is your paperwork: the completed Code checklist, the written warning, notes of the meeting, the investigation record and the written notice of termination.

Key takeaways

• Count your employees first — fewer than 15, including the person you're dismissing and any associated entities, and the Small Business Fair Dismissal Code applies.
• Small business employees can't claim unfair dismissal in their first 12 months, but general protections and discrimination law apply from day one.
• Serious misconduct allows dismissal without notice, but only if you investigated and let the employee respond before deciding.
• For everything else: valid reason, written warning, chance to respond, reasonable chance to improve, and a support person if asked.
• Notice must be in writing and runs from 1 to 5 weeks; small business employers are exempt from National Employment Standards redundancy pay but not from notice.
• The claim window is 21 days, and your completed checklist plus written records are what wins the case.

Where to get help

• Fair Work Ombudsman (fairwork.gov.au, Infoline 13 13 94) — the Small Business Fair Dismissal Code and Checklist, the Ending Employment fact sheet, notice and redundancy calculators, and every modern award.
• Fair Work Commission (fwc.gov.au) — the Small Business Hub, unfair dismissal benchbook, and the forms and fees if a claim is made.
• Your state or territory small business commissioner — free or low-cost workplace advice and dispute assistance.
• An employment lawyer or a registered workplace relations adviser — worth the money before you dismiss anyone with long service, anyone who has recently complained or taken leave, or anyone where the reason could be read as discriminatory.
• Your accountant or bookkeeper — for calculating the final pay correctly, withholding on any employment termination payment, paying the super within the payday super deadline, and finalising the employee in Single Touch Payroll.