Australia: Making long service leave fairer for everyone

In brief - An overview of significant changes for employers in Victoria

The Long Service Leave Act 2018 (Vic) (the New Act) takes effect on 1 November 2018. The New Act repeals and replaces the Long Service Leave Act 1992 (Vic) (the Current Act), and provides employees with greater flexibility, consistency and equity. All Victorian employers need to be aware of the changes the implementation of the New Act makes to long service leave (LSL) entitlements.

The most significant changes are explained below.

Allowing employees to take leave one day at a time

The Current Act limits flexibility by requiring LSL to be taken in one, two or three periods (except in circumstances where there is agreement between the employer and employee for separate periods).

The New Act allows an employee to make a request to their employer to take LSL for any period of time provided it is not less than one day. Only in circumstances where there are reasonable business grounds can an employer refuse the request.

Allowing employees to take leave after seven years

The Current Act provides that a pro rata LSL entitlement is available after seven years' service on the termination of employment (or alternatively subject to the employer's agreement). The Current Act also allowed employees to take LSL once they have completed ten years' continuous service.

Under the New Act, after seven years' employment, an employee is able to apply for LSL which can only be refused on the ground of business necessity (see section 18(2)).

Treating parental leave the same as other forms of leave

The Current Act treats parental leave less favourably than other forms of leave. The the New Act provides that all forms of "paid" leave (including parental leave) count towards an employee's continuous service.

In addition to this, any period of unpaid leave (including but not limited to parental leave) up to 52 weeks also counts as service (see section 13(1)(b) of the New Act) and any additional unpaid leave which exceeds 52 weeks which the employer and employee agree on (see section 13(1)(d) of the New Act). The other benefit to employees arising under the New Act is that any period of unpaid leave beyond 52 weeks, while it will not count towards service, will not break continuity of employment.

Making it harder for an employee to lose their entitlements following business sales by expanding the definition of "assets" to include intangible assets

New businesses to which assets are transferred adopt the LSL liability for any employees where the employees are employed by a new business and continue to perform duties in connection with the transferred assets. However, the Current Act provides where no physical assets have transferred as part of the sale of a business, employment with the first employer may not count as service, depending on the circumstances.

The expanding of the definition of "assets" under section 11(12) of the New Act means employees are more likely to be entitled to have their prior service recognised. Therefore, if an employee performs works in relation to tangible or intangible assets used in the carrying on of a business, and those assets are transferred, employment will be continuous if the new owner of the assets continues the employee's employment.

Fairer rules for when an employee changes their hours of work

The Current Act includes rules for when an employee does not have fixed hours of work, or changes their hours of work in the 12 months before taking LSL.

While the New Act retains the averaging arrangement from the Current Act, it extends the period of time where an employee changes their hours of work to 24 months. However, it adds a new option whereby the hours worked are averaged over the entire period of continuous service, with the employee entitled to the greater of the three averages (see section 16).

Fairer rules for casual employees

The Current Act allows a casual employee up to three months between engagements before their continuity of service is broken. Under the Fair Work Act 2009 (Cth), casual employees are entitled to parental leave, but if they exercise that right, and take more than three months' parental leave, they would lose continuity of service under the Current Act.

The New Act retains the three month rule but makes a specific exemption for a casual employee taking up to two years' parental leave (Section 12(2)(d) of the New Act).

Giving authorised officers the power to demand employment records

The Current Act does not give authorised departmental officers any real powers of enforcement. Under the New Act, the Secretary may appoint a person as an authorised officer and give them the power to request information or documents from persons.

Penalties

Civil penalties have been abolished under the New Act and now any offences attract a criminal penalty. Further, an employer found guilty of an offence may also receive a criminal record.

How to calculate long service leave

At any time after completing seven years of continuous employment with one employer, an employee is entitled to an amount of LSL on ordinary pay equal to 1/60th of the employee's total period of continuous employment, less any period of LSL taken during that period.

For example, if a person has completed nine years of continuous employment with one employer, they would be entitled to 7.8 weeks of LSL (9 x 52/60). The payment of 7.8 weeks of LSL is based on the weekly hours worked, therefore a full-time employee who works 38 hours a week will be paid 38 hours each week and a part-time employee who works 25 hours each week will accordingly be paid 25 hours per week over the 7.8 week period.

The method of calculation is different for casual employees as their hours vary from week to week. The employee's hours for calculating LSL will be the greater of the average over the preceding 12 months or the proceeding five years.

For example, see below table of a casual employee's hours over the past five years:

Year Hours worked (Average number of hours worked per week/52)
1 200 3.8
2 240 4.6
3 120 2.3
4 260 5
5 100 1.92
Average of 5 years 184 3.5 (total average hours/5)

The casual employee's LSL should therefore be calculated based on the average weekly hours over the past five years, as they would be entitled to LSL based on 3.5 ordinary hours pay a week as opposed to 1.92 ordinary hours.

Under the New Act, there is a third method for calculating a casual employee's LSL entitlements, which allows the employee to use the average number of weekly hours worked in relation to the last period of continuous employment before LSL.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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