The NSW Government has recently introduced a portable long service leave (LSL) scheme for the community services industry (Scheme) which will be administered by the Long Service Corporation (LSC). The Scheme is enacted by the Community Services Sector (Portable Long Service Leave) Act 2024 (NSW) (CSS Act) and the Community Services Sector (Portable Long Service Leave) Regulation 2025 (NSW) (CSS Regulation), which are due to commence on 1 July 2025.
(1) Who will be covered by the Scheme?
The CSS Act applies to employers who employ 1 or more people to do "community service work" (s 6(1) of the CSS Act) and to "workers", being either:
- employees engaged on a full-time, part-time or casual basis; or
- contractors who do community service work (s 5(1) of the CSS Act).
However, "workers" under the CSS Act does not include the following persons doing community service work under:
- a contract of service with a partnership if the person is a partner and participates in the management of the partnership or shares the profits;
- a contract of service with the Commonwealth, the State or a local government authority;
- a contract with a corporation of which the person is a director; or
- a contract with a trust of which the person is a trustee (s 5(2) of the CSS Act).
A "worker" does "community service work" if they work to provide a "community service" or work for an employer, the predominant purpose of which is to provide a "community service" (s 4(1) of the CSS Act). This means that if an employer under the Scheme employs people to do work other than community service work, the scheme will not apply to those employees unless the employer's "predominant purpose" is to provide one or more community services captured by the CSS Act, in which case, the Scheme will apply to all of its employees, including support and management staff (see the Second Reading Speech).
"Predominant purpose" is not defined in the CSS Act or CSS Regulation but the LSC has provided some guidance as to how this should be assessed. Whether the predominant purpose of an employer is to provide community services is assessed by reference to the principal activities and functions of the organisation. If a majority of the organisation's core activities and resource allocation are related to community service work, then the employer's predominant purpose will be to provide community services. "Community services" is broadly defined to include a large variety of categories of service, including, for example, "family support services", "disability supports and services" and "homelessness support services" (s 4(2) and schedule 1 of the CSS Act). A description of each of the types of community service included in the Scheme is available at the LSC website. Importantly, the definition of "community services" does not currently include residential aged care and early childhood care and education.
(2) How will the Scheme operate?
Broadly, the Scheme involves employers paying the LSC a levy, the amount of which is calculated as a percentage of the ordinary remuneration of each of its employees covered by the Scheme (s 41(1) of the CSS Act). This percentage is currently expected to be 1.7% but is yet to be determined by the Minister. Ordinary remuneration is determined by reference to the highest of the weekly averages of the ordinary remuneration received by the worker during the most recent 2, 4, 20 or 28 quarters of service as a registered worker before the day the leave starts (s 54 of the CSS Act). In other words, it is calculated by reference to whichever of these periods is most favourable to the employee. This levy must not be deducted from the wages of workers. Employers must therefore budget for this additional payment.
Each quarter of the year will be a "return period" and employers will have 14 days from the end of the return period to lodge a return for workers under the Scheme (s 34(1) and Schedule 3 of the CSS Act). The return must contain, among other things, the total amount of ordinary remuneration paid by the employer to the worker during the return period for community service work done by the worker (s 34(2) of the CSS Act). Employers must pay the relevant levy to the LSC quarterly on provision of the return (s 42 of the CSS Act). For example, for the 1 April 2026 – 30 June 2026 return period, the return and levy are due on 14 July 2026.
A worker's entitlement to LSL is calculated by dividing the number of days of recognised service by 365 then multiplying that number by 0.8667 (s 47 of the CSS Act). Once eligible employees have achieved the minimum recognised service required (2,555 days or 7 years) (s 48 of the CSS Act), they may apply to the LSC for payment of the LSL (s 50(1) of the CSS Act). If the LSC is satisfied that the worker is entitled to LSL under the CSS Act, it will pay the registered worker the amount payable (s 50(3) of the CSS Act).
A worker is entitled to a further 0.8667 weeks of LSL for each subsequent 365 days of recognised service after becoming entitled to LSL under the CSS Act (s 48(2) of the CSS Act).
(3) What is the timeline of the Scheme?
(a) When do employers need to register?
Within one month of commencement (1 July 2025), employers must apply to the LSC to register as an employer under the CSS Act (s 10(2) of the CSS Act). We expect the LSC to provide further details on how to do so closer to this date. The LSC will then either register the employer or refuse to register the employer (s 10(3) of the CSS Act). If the LSC registers the employer, it will add it to the employers register which includes, among other things, information such as the employer's name, ABN, principal place of business and the community services provided by the employer (ss 9 and 11 of the CSS Act). It will also issue a certificate of registration containing the information on the employers register (s 12(1) of the CSS Act). Employers have an ongoing obligation to notify the LSC in writing if any of the details on this certificate of registration change within 7 days after that change (s 12(2) of the CCS Act).
(b) When do employees need to register?
A worker may apply to the LSC to be registered (s 14(1)(a) of the CSS Act). However, if they do not do so within 3 months after commencing community service work for an employer, the employer must do so on their behalf within 14 days after the end of that 3-month period (s 14(2) of the CSS Act). Since there are penalties for employers who fail to comply with this requirement, we would encourage employers to consider whether they would prefer to apply to register all their employees on their behalf at the outset or to direct all employees to apply. Worker registrations will commence in April 2026 when the first return is due.
(c) What is the first return period?
The first return period is the period between 1 July 2025 and 31 March 2026 (s 5 of the CSS Regulation). This means that the first service return and levy payment (which will cover the first three quarterly returns) will be due from April 2026 and the LSC will advise once this due date is known. Thereafter, employers will be required to submit service returns and levy payments quarterly.
(d) What is the foundation worker bonus?
The Scheme will not apply retrospectively (see the Second Reading Speech and s 29(2) of the CSS Act which states that a registered worker must not be credited in the workers register with a day's service that occurs before the worker's registration day) and accordingly, previous service will not be recognised under the Scheme. However, a person who is registered as a worker within six months after the commencement of the CSS Act on 1 July 2025 will be registered as a "Foundation Worker" and credited with 365 days of recognised service on registration (ss 15(1) and 31 of the CSS Act). There is no suggestion that employers will be responsible for funding the LSL payments in respect of these 365 days of service.
(4) How are contractors treated under the Scheme?
Eligible contractors must opt into the Scheme in order to receive payments. They can do so by also registering themselves as workers. If they are registered as workers under the Scheme, they must lodge their own returns specifying the number of days on which they did community service work during the return period and their total ordinary remuneration for that work during the return period (s 36 of the CSS Act). Accordingly, employers under the Scheme will not be responsible for registering or lodging the returns of any contractors they have engaged.
Contractors must also pay the levy to the LSC quarterly on provision of the return (s 42(2) of the CSS Act). Once a contractor becomes eligible for LSL, the amount payable to them is the amount of the LSL levy paid by the contractor plus interest at the rate determined by the LSC as calculated from the date of receipt of each LSL levy payment (s 55(1) of the CSS Act).
(5) How will the Scheme interact with the Long Service Leave Act 1955 (NSW) (LSL Act)?
The CSS Act prevents workers being paid for a day's service that is credited to them in the workers register if payment for that day's service has already been made under the CSS Act or another act or award such as the LSL Act (s 51 of the CSS Act). It also includes a requirement that registered workers who are eligible for both LSL under the CSS Act and the LSL Act must elect the arrangement under which they will take LSL and notify the LSC in writing of this election and the period to which it applies. If the worker chooses to take LSL under the LSL Act, the LSC must still remove the worker's credits from the workers register (s 86 of the CSS Act).
Employers may also be reimbursed for certain LSL payments made to workers under the LSL Act after 1 July 2025. This may occur in the following circumstances:
- If a registered worker is entitled to LSL under both the LSL Act and the CSS Act, but elects to take LSL accrued after 1 July 2025 under the LSL Act and their employer pays them an amount under that Act, the employer may apply to the LSC for reimbursement of that amount (s 87 of the CSS Act).
- If an employee is entitled to take LSL under the LSL Act, but not under the CSS Act, the employer may apply to the LSC for reimbursement of the amount of LSL paid to the employee for any part of the entitlement accrued under the LSL Act during an engagement period in which the employee was a registered worker under the CSS Act. If the LSC makes this payment to the employer, it must also remove the employee's credits for that engagement period from the workers register (s 88 of the Act).
These reimbursement mechanisms avoid the employer making two LSL payments (paying the LSL under the LSL Act and paying the levy under the CSS Act) in respect of the same worker for the same period.
Similarly, the LSL Act is being amended to specify that an employee who is a registered worker under the CSS Act and has elected under the CSS Act to take LSL is not prevented from receiving benefits under the LSL Act. However, they are not entitled to a benefit under the LSL Act in respect of a period for which they already received a benefit under the CSS Act (Schedule 4 at 4.4[2] of the CSS Act). In other words, a worker cannot take LSL under both acts in respect of the same period of service.
(6) What are the consequences of non-compliance with the CSS Act?
Enforcement mechanisms under the Scheme broadly include:
- the ability to appoint inspectors who have broad powers to, among other things, enter premises and inspect records;
- the issuing of penalty notices which operate like a fine, the payment of which allows the recipient to avoid liability for the alleged offence; and
- the issuing of penalties for failure to comply with obligations under the Scheme.
Penalties and penalty notices may be issued in respect of 3 broad categories of non-compliance:
Failure to comply with obligations under the Scheme: For example, if a company fails to provide the LSC with written notice of a change to the employer's certificate of registration, it can receive a penalty of up to 5 penalty units (currently $1,650) (s 12(2) of the CCS Act).
- Providing misleading information: For example, if a company makes a statement that it knows to be false or misleading, it can receive a penalty of up to 50 penalty units (currently $16,500) (s 103 of the CSS Act).
- Obstructing inspectors from performing their duties: For example, if a company refuses to allow an inspector to enter premises, it may receive a penalty of up to 50 penalty units (currently $16,500) (s 83 of the CSS Act).
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.
