Publications
What you were afraid to ask about Long Service Leave
In Brief
Long service leave is an often overlooked and forgotten entitlement which rewards longer periods of service. This article provides an outline of this area and the key things to be mindful of.
What is it?
Long service leave is generally a statutory entitlement which employees accrue, based on length of service with a particular employer. Employees usually accrue long service leave under respective state legislation although entitlements may arise under awards or enterprise agreements or due to an express contractual obligation assumed by an employer. It is important to remember the qualifying period of service for long service leave and the terms upon which it is payable and can be taken, varies between States and Territories.
Is there a National System?
The short answer is no. However, the Fair Work Act 2009 (Cth) states that if employees are entitled to long service leave under enterprise agreements or industrial awards then those will apply rather than the state legislation.
The New South Wales Long Service Leave Act 1955 (NSW)
Employed for 10 plus years
In the normal course, an employee will be entitled to long service leave of 2 months after 10 years of continuous service. Each additional 5 year period entitles the employee to one additional month of long service leave (payable on a pro rata basis on termination).
Employed for a Period of 5 ‑10 years
No long service leave is payable under the NSW legislation for a period of service of less than 5 years. Employees who have a period of service of 5 years or more may be entitled to long service leave on a pro rata basis. An employee whose employment terminates after 5 years (but short of 10) will only be entitled to long service leave:
- if their services are terminated by the employer for any reason other than the employee’s “serious and wilful misconduct”;
- if the employee resigns due to “illness, incapacity or domestic or other pressing necessity”; or
- if their services are terminated by reason of the death of the employee.
This means that if an employee is terminated due for example to redundancy or performance issues (not amounting to serious and wilful misconduct) then they will receive a long service leave payout upon termination. If the employee resigns for a reason not comprising “illness, incapacity or domestic or other pressing necessity” then they will not be entitled to long service leave.
What Is Paid?
Long service leave is paid at the “ordinary rate of pay” of the employee. Ordinary pay does not include shift, overtime or penalty rates. It may however include bonuses (subject to some limitations). There are complex formulae for calculating it, for example employees on fixed rates of pay can choose between receiving long service leave based on their current rate of pay or on their average weekly pay in the 5 years prior to taking or being paid out long service leave.
Taking Long Service Leave
Under the Act, employees should take long service leave in one continuous period unless the employer and employee agree to the following separate periods:
- where the amount of the leave is 2 months, in two separate periods;
- where the amount of the leave exceeds 2 months and does not exceed nineteen and one-half weeks, in two or three separate periods;
- where the amount of the leave exceeds nineteen and one-half weeks, in two, three or four separate periods.
In the event of death of an employee (and also thus termination of employment) the employee’s personal representative may receive payment for the employees long service leave.
Payment for long service leave cannot be made in lieu of taking long service leave, except upon termination of employment.
Do casual employees have any entitlement to Long Service Leave?
Employees treated as “casual employees” are entitled to long service leave if they have the requisite period of continuous service.
Taxation and Superannuation on Long Service Leave
If long service leave is taken during employment then tax is paid on the amount and superannuation contributions are required to made. Generally speaking, if long service leave entitlements are paid out upon termination of employment then tax is paid on that amount, but superannuation contributions are not required to be made.
Long Service Leave Schemes — Portability and transferring entitlements
Some employees participate in portable long service leave schemes. Employees in the building and construction industry may be part of a construction industry portable long service leave scheme. Equally contract cleaners may be part of the cleaning industry portable long service leave scheme. These schemes are overseen and run by the Long Service Corporation, a NSW State government owned corporation.
The Act contains provisions protecting an employee’s service record and continuity of service in certain circumstances in which there is a “transmission of business”. Provisions also exist where one “related entity” employs an employee of another related entity, concurrently with or within 2 months of termination with the first entity.
Conclusion
Employers should carefully review their legal obligations when considering the payment of long service leave. They should also ensure that they budget for what can be a significant financial obligation, the scale of which will vary according to the size and longevity of the workforce.
For further information please contact: