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Long service leave applies to most employees in Australia who are full-time, part-time or casuals. For example, it is a period of paid leave a worker may take after 10 years of continuous service with the same employer in NSW. Additional entitlement to long service leave is earned after each additional five years of continuous service with the same employer. In the below context, we will provide more detailed information in New South Wales.
The Long Service Leave Act 1955
The Long Service Leave Act 1955 provides full-time, part-time and casual workers in NSW 2 months (8.6667 weeks) paid long service leave when continuous service with the same employer over than 10 years.
The Act provided for a pro-rata entitlement after five years,
if the employee resigns as a result of Illness, incapacity or domestic or other pressing necessity. Any above reasons, they need to advise the employer in writing at the time of giving notice.
if an employee’s services have been terminated by the employer for any reason other than serious and wilful misconduct, or if the employee dies.
If an employee ceases employment before 5 years’ service, there is no entitlement for long service leave.
How we define continues service?
While any period of unpaid leave or unpaid authorised absences (such as parental leave) does not break an employees’ continuous service, it does not count towards the length of the employee’s continuous service except a few circumstances, such as illness or injury.
For example,
Mrs Salone took a year of parent leave from her full-time position as unpaid parental leave. She is now approaching the 10 years anniversary of starting employment in her job. She will not be eligible for long service leave for another 12 months.
How long Service Leave is Calculated (two main streams)
Employees on fixed hours (Full/part time)
For workers remunerated on an ordinary time rate or pay. Long Service Leave payments are based on whichever is the higher of these two options:
The workers ordinary pay for the last pay period prior to the leave being taken, or
The average weekly rate of pay during the previous five years.
Casual staff
For casual workers long service Leave pay is based on whichever is the higher:
The weekly number of hours averaged during the previous 12 months, or
The weekly number of hours averaged during the previous 5 years.
The entitlement is calculation by multiplying the higher of these two figures by the employees current hurly rate.
How long Service Leave is Calculated
Long Service Leave cannot be cashed out, it must be taken as leave, except there an employee will no longer be working for the company.
For those employees who wish to continue in their job, there would be some options applied between employee and employees, for example take the period as single continuous period, in a few different periods.
NSW government recommended use the leave calculator Long Service Leave Calculator | NSW Industrial Relations to estimate the LSL balance.
If you want to find out more about Ling service leave entitlements in your state or territory:
State | Reference |
ACT | |
NSW | |
NT | |
QLD | |
SA | |
TAS | |
VIC | |
WA |
Accounting Recognition and measurement of long service leave
Long service leave is classified as other long-term employee benefits under AASB 119. According to AASB 119 para 72, employee service gives rise to an obligation even if the benefits are conditional on future employment (in other words they are not vested). The liability for long service leave is measured as the present value of the estimated future cash outflows to be made by the employer for services provided by employees up to the reporting date.
AASB 119 requires that:
Not-for-profit public sector entities, other long-term employee benefits i.e. long service leave, is discounted based on the long-term government bond rate as at the reporting date (AASB 119 para 83 and Aus83.1).
For-profit entities, the Standard requires that the other long-term employee benefits are discounted using high quality corporate bond rates, or the government bond rate in the absence of a deep market in high quality corporate bonds (AASB 119 para 83).
Future salary, discount rate and probability of payout occurring would be the key factors for corporate to consider the judgements and estimate that get made.
Mrs Salone example again
Mrs Salone has been working at her current employment for 6 years. She is entitled to have 2 months (8.67 weeks) paid long service leave when she has worked 10 years.
Assuming Mrs Salone’s annual salary expected to grow at 4%, and discount rate is 6%, and opening LSL liability of $2000. The company believes there is 70% probability that Mrs Salone will still be employed by them in 4 years’ time. Mrs Salone’s current salary is $100,000.
Projected Salary:
$100,000 x (1+4%) ^4 = $116,986
Accumulated LSL benefit:
6years/10 years *8.67 weeks= 5.02 weeks
5.02weeks x 116,986 (projected salary)/52 weeks = $11,703
Present value of LSL obligation:
$11,703/ (1+6%) ^4= $9,271
Possibility LSL will be taken:
$9,271*70% = $6,489
Journal Entry to record additional Long Service Leave provision:
Dr： LSL expense $4,489
Cr Provision for LSL $4,489
In summary, long service leave in Australia, particularly in New South Wales, rewards dedicated service with paid leave entitlements. Understanding eligibility and calculation methods is crucial for employees. Accounting standards ensure accurate recognition of this liability. Stay updated through our official social media channels for ongoing information and support.