What is long service leave (LSL)?

Long service leave (LSL) is a unique state-based entitlement in Australia, granting employees extended paid leave after a long period of continuous service, usually with the same employer. Alternatively, LSL may be paid out in cash in some circumstances.

Depending on state or territory regulations, this leave becomes available after seven to ten years of service.

While LSL is a valuable benefit for employees, it presents several compliance challenges for employers. Navigating the varying state laws, awards and enterprise agreement interactions, National Employment Standards, managing entitlements for casual and part-time workers, and ensuring accurate record-keeping, are just a few of the complexities businesses must address to remain compliant.

Adding to the complexity is the portable long service leave scheme which allows some workers to accumulate long service leave entitlements based on their continuous employment within an industry, rather than with a single employer.

There has been a noticeable increase in focus by state-based authorities, as well as the Fair Work Ombudsman, concerning leave entitlements. The Wage Inspectorate Victoria has been particularly active in addressing underpayments related to long service leave. Similarly, the Department of Energy, Mines, Industry Regulation and Safety (DMIRS) has been vigilant in its enforcement efforts to ensure employees receive their rightful benefits in Western Australia.

Underpayment of leave entitlements is a serious issue and can lead to additional costs, penalties, and reputational damage. These may include financial penalties, criminal penalties, back payments, and broad PR issues, not to mention administrative and time costs associated with remediation.

What are the common challenges?

Common challenges that arise when navigating LSL include:

The complex nature of navigating the varying LSL rules for a national workforce - particularly around understanding accrual and non-accrual periods, employees who work non-standard hours or have varying work-patterns and appropriately managing payouts
Conflict between state LSL legislation and enterprise agreement or contractual entitlements
Payroll systems struggling to comply with LSL accruals and entitlements - particularly where older payroll systems are updated, new solutions are implemented, or where new businesses and workers are incorporated through acquisitions
Remedying underpayments to employees - particularly where the employee has terminated employment.

Navigating LSL legislation across jurisdictions

One of the primary challenges for many employers is managing a national workforce across different state rules. This includes understanding eligibility criteria, which can range from seven to ten years of service, varying rates at which LSL accrues, periods of leave that may not accrue LSL, and the complexities of employees moving between states with different regulations and entitlements.

The complexity of LSL: An example

An employee from Victoria will accrue 0.8667 weeks of long service leave for every year of service, while an employee from South Australia will accrue 1.3 weeks of long service leave for every year of service. Where an employee has worked in both states, employers must consider the various entitlements for the different periods worked in each state.

Enterprise agreements and State and Territory Acts

The relationship between LSL legislation in State and Territory Acts and enterprise agreements can conflict and create confusion. Many agreements encompass differing entitlements and accrual methods for LSL, including blended agreements between state-based legislation and negotiated LSL entitlements. This complexity amplifies the challenge of maintaining compliance with LSL obligations.

Payroll system capability and accuracy

Payroll systems are often relied upon as the source of truth for employees’ LSL entitlements. However, payroll systems themselves are often the cause of inaccuracies, which may result from incorrect input of information and changing of payroll systems. Furthermore, some payroll software may not be robust enough to account for changing entitlements due to state jurisdictions, increasing value of entitlements, and new enterprise agreements with updated considerations, resulting in implementation struggles

Remedying payments to employees

Where current employees are still on the payroll, remedying an LSL balance can be rectified by adjusting the leave balance in payroll. The challenge lies with former employees who are no longer on the payroll system. Complexities include tracking down and contacting former employees, validating the former employees’ identity, verifying bank details, etc.

In either case, whether current or former employee, it is essential communications to the employee be done with the utmost sensitivity. Employers must be clear and transparent in all communications to avoid misunderstandings.

Considerations for employers

Employers, especially those operating across multiple states, should consider the following to ensure compliance with LSL standards in Australia:

Review and be familiar with the LSL legislations for all states in which business operates
Review company policies and enterprise agreements for varying LSL entitlements
Ensure that the payroll system is configured to align with all LSL obligations
Consider whether a remediation exercise is needed to determine historical underpayments arisen from broken shifts.

How BDO can help

Pay compliance, particularly LSL compliance is an increasingly important consideration for employers, with errors proving both costly and time-consuming to resolve. Employers are encouraged to remain proactive and conduct regular audits to ensure compliance and address any discrepancies promptly to avoid penalties and reputational damage.

Our Payroll Advisory team can resolve uncovered issues and help you do the right thing for your employees. We work with employment lawyers to manage the correct interpretation of grey areas and ensure our clients are best protected from penalties and reputational damage. Where remediation is necessary, we will support you through the process and help you project manage and deliver underpayments to former employees. We will also help you manage sensitive communications to your employees to ensure you maintain goodwill.

Contact the team at BDO today to learn more about payroll compliance and subscribe to receive updates on the latest developments in workplace compliance.