Understanding Long Service Leave in NSW: A Guide for Small Businesses

Navigating long service leave (LSL) in New South Wales can be tricky for small business owners. This guide aims to simplify how LSL works, how it accrues, and how payouts are calculated so that you can stay compliant and show your employees they’re valued.

What is Long Service Leave?

Long service leave is a period of paid leave given to employees who have worked for a long time with the same employer, rewarding their loyalty. In NSW, the rules are set out in the Long Service Leave Act 1955.

How Long Service Leave Accrues for Permanent Employees

Permanent employees, whether full-time or part-time, earn LSL based on their years of service. They are entitled to 2 months (or 8.67 weeks) of paid leave after 10 years of continuous service. After the first 10 years, they get an extra 4.33 weeks of LSL for every five years of service.

For full-time employees, this is usually straightforward, calculated based on their regular weekly hours. Part-time employees accrue LSL in proportion to their regular work hours.

How Long Service Leave Accrues for Casual Employees

Accruing LSL for casual employees is a bit more complicated. The key is “continuous service,” which includes regular and systematic employment with the same employer, with the expectation of ongoing work.

Casual employees earn LSL in the same way as permanent employees if their employment is continuous. Breaks in service of up to three months don’t disrupt continuity, nor do authorised absences like unpaid leave or parental leave, unless the absence is due to a termination of employment followed by re-hiring by the employer.

Continuous Employment Explained

For permanent employees, continuous employment means ongoing work without major interruptions. For casuals, it means being engaged regularly and systematically, with a reasonable expectation of continued work. Parental leave doesn’t count towards the length of service for accruing LSL, but it doesn’t break the continuity of employment.

Example: If an employee worked for 10 years and took 20 months of parental leave, they’d need to work an additional 20 months to meet the 10-year requirement for LSL.

Calculating the Payout

The LSL payout is based on the employee’s ordinary gross weekly wage when the leave is taken. For employees with varying hours, like casuals or part-timers, the pay is calculated using the greater of:

• The average weekly hours worked in the last 12 months before taking leave
• The average weekly hours worked in the last five years
• The actual weekly hours worked in the last pay period before the leave

This ensures employees are compensated fairly based on their regular earnings pattern, protecting them from disadvantages caused by recent reductions in hours or changes in employment type.

Example: If Sally, a casual worker who later became a permanent employee, had fluctuating hours between 20 to 35 per week but worked 38 hours in the week before taking LSL, her payout would be based on the 38-hour week.

Casual Employees and the Long Service Leave Act 1955

The LSL Act provides all workers in NSW, including casuals, with 2 months (8.67 weeks) of paid LSL after 10 years of continuous service with the same employer. The NSW Industrial Relations outlines circumstances to calculate a casual worker’s entitlement.

Casual workers often have irregular hours, leading to weeks with zero hours worked. These zero-hour weeks fall into different categories and affect LSL accrual and average weekly hours differently:

1. Not available by choice: Counts as service and included in average weekly hours.
2. Ready to work but not rostered: Counts as service and included in average weekly hours.
3. Unpaid leave per employment terms: Counts as service but excluded from average weekly hours.
4. Absence due to illness or injury: Counts as service but excluded from average weekly hours.
5. Parental leave: Doesn’t count as service but doesn’t break service, and is excluded from average weekly hours.

A zero-hour week doesn’t break continuous service. For service to be broken, a thorough assessment based on the LSL Act criteria is needed.

Calculating the Average Weekly Hours of Work

When calculating average weekly hours, only ordinary hours are included. Consider weeks where casual workers accrued service but didn’t earn income as working weeks. Exclude periods of unpaid leave like illness or parental leave.

Determine whether the average weekly number of hours over the last 12 months or five years is higher. Use the higher average for calculating normal weekly hours.

Calculating the Ordinary Remuneration

Use the higher of the two average hours calculations to determine ordinary remuneration by multiplying deemed hours by the hourly rate of pay on the prescribed date. This ensures fair compensation based on regular earnings.

Conclusion

For small business owners in NSW, understanding and managing LSL correctly can enhance compliance and employee satisfaction. Recognizing your employees’ dedication through appropriate LSL entitlements helps you meet legal standards and fosters a loyal, stable workforce.

Keep accurate employment records and understand the nuances of employment types within your business. If unsure, consult an HR professional or legal advisor to ensure full compliance with NSW legislation.

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