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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 employ­ees 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.

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