If only there was a one paragraph answer to this one!
Recently we looked at the most common questions we are asked by our clients and the topic that came up over and over was long service leave. It’s not surprising really. I don’t think we could have designed a more complicated system if we tried!
Each State and Territory has different rules when it comes to long service leave entitlement, continuous employment, pro rata long service leave on termination, whether long service leave can be cashed out, the rates that long service leave is paid and when an employee can take long service leave.
Unused long service leave also has a different PAYG withholding and payment summary reporting requirements depending on the reason for termination.
But by far the most common question is how to calculate long service leave in each State or Territory. The entitlement in each jurisdiction is based on the employee’s years of continuous service. So the first thing to determine is the entitlement in weeks based on continuous service.
You need to take into consideration any absences that do not contribute to service such as leave without pay or maternity leave.
The potentially more difficult step is to deterring the dollar value of a ‘week’. The method of determining a ‘week’ varies between each jurisdiction and to make it slightly more complicated, there are further calculations that need to be considered depending on whether the employee has fixed or variable work hours and whether the employee has changed their work pattern in the qualifying years.
Once you have the value of a week, you can then pay the entitled employee the correct value of their long service leave when they choose to take it.
If you are paying out unused long service leave on termination ensure that you understand when the leave was accrued as this will impact the way it is treated from a taxation point of view. Depending on both when the leave was accrued (pre 16 August 1978, 16 August 1978 to 17 August 1993, or post 17 August 1993) and the reason for termination will affect the taxation of these payments.
If you have any questions regarding the accrual, payment or taxation of long service leave please contact the team on 02 9818 1931.