NSW Long Service Leave: Key Takeaways From The Updated Guidance

Last week, NSW Industrial Relations released updated long service leave (LSL) guidance, including a step-by-step guide (the Guide) and updated FAQs outlining the application of the Long Service Leave Act 1955 (NSW) (the Act) to the calculation of LSL accruals and payments. 

The Guide addresses several areas of the Act that have not previously been the subject of detailed guidance and clarifies some of the frequent queries that employers are faced with when interpreting and applying the (somewhat complex!) NSW LSL regime outlined in the Act. For employers, it also reflects the preferred view of NSW Industrial Relations as the regulator for the Act. 

While the Guide outlines a range of issues that are likely to be useful, we have summarised below four key areas of the Guide where there has been a shift or clarification, and that we consider will be particularly useful to employers. 

Whilst the guidance is not legally binding, it expresses the regulator's view as to how these provisions should be interpreted. 

Continuous Service for Casual Workers 

One of the key updates that has been highlighted by NSW Industrial Relations is the guidance provided with respect to service of causal employees. The treatment of casual workers under the Act has previously been a source of uncertainty for employers. The Guide provides a detailed framework for assessing whether a casual worker has achieved continuous service.

Step one:  Establish a pattern of a series of engagements. Notwithstanding that each engagement (or "shift") of a casual worker constitutes a discrete engagement, continuous service for casuals can be established through establishing a "pattern of a series of engagements", such that in assessing continuous service, employers can "string together" each engagement such that the engagements constitute a pattern or series of engagements giving rise to an ongoing employment relationship (drawing upon s. 4(11)(a1) of the Act which provides certain interruptions which do not break continuous service). 

An assessment of continuous service for casuals must be considered on a case-by-case basis noting the following factors: 

• The regularity of the casual worker's engagements;
• The time between the worker's engagements; and
• The reasons for the interruptions between the worker's engagements. 

Step two: Consider any interruptions in the pattern of work. Interruptions that are part of a casual worker's ordinary rostering (i.e. days of leave and days off) are considered to fall within the pattern of a series of engagements (under s. 4(11)(a1) of the Act) and do not break service. If interruptions cannot be categorised under that section, then the worker's service is broken. 

It is worth noting under this approach, that the record-keeping requirements under the Act require employers to maintain records of the departures and interruptions to an established pattern of work, and whether a pattern of engagements is established. 

More broadly, the Guide also sets out a number of examples and considerations with respect to an assessment of continuous service and the relevant interruptions which may occur, such as unpaid parental leave.

Ordinary Pay and treatment of bonuses 

The other key area that NSW Industrial Relations has highlighted in their updated guidance is the approach to calculation of Ordinary Pay under the Act, and particularly the approach to employees who may have fluctuating amounts of pay. 

The Guide provides considerably more detail than the Act on the calculation of ordinary pay, adopting a formula-based approach that should assist employers in addressing some of the frequent queries in this area.

In particular, the Guide provides detailed guidance on the treatment of bonuses in ordinary pay calculations, which is a somewhat unique aspect of the NSW scheme. 

Importantly, a bonus or incentive payment is defined in the Guide as any contingent pay that a worker receives based on their results, performance, or other matters, not merely for the hours they worked or their normal work duties. Entitlement to, or eligibility for, these payments must be specified in both the worker's terms of employment and under a bonus or incentive scheme.

Crucially, bonus or incentive payments can only be included in the ordinary pay calculation if the worker's annual ordinary pay (excluding bonuses) is less than the high-income threshold for the relevant year (currently $183,100). Payments that are excluded from the ordinary pay calculation include genuine ex gratia (voluntary or goodwill) payments made at the complete discretion of an employer and without any expectation on the part of the worker, as well as performance-based payments that are the worker's only or main remuneration.

The Guide distinguishes between two potential bonus scenarios: 

• Scenario one: where a worker is eligible for a bonus or incentive as at the prescribed date, and therefore, the worker is treated as being remunerated "otherwise than wholly in relation to an ordinary time rate of pay fixed," meaning their ordinary pay is calculated under the average weekly wage method (being the greater weekly wage earned over the previous 12 months or 5 years). The employer must then calculate the average weekly bonuses over the corresponding period (12 months or 5 years, depending on which base calculation was higher) and add this to the worker's ordinary pay, provided the high-income threshold is not exceeded.
• Scenario two: where a worker is not entitled to or eligible for a bonus at as the prescribed date (but has received such amounts in the past), and otherwise is considered to be paid ‘wholly in relation to an  ordinary time rate of pay fixed', their applicable pay will be considered to be the higher amount of the ordinary remuneration as at the prescribed date, or the average ordinary weekly remuneration over the previous 5 years, plus the corresponding average amount of bonuses. 

In both cases, no amount should be double counted in either the ordinary pay or bonus calculations. As to whether an employee is eligible at the prescribed date (and therefore falling within scenario 1, above), the Guide specifies that potential payment is also relevant, including situations where there is a reward for individual or group performance over a specified period, and if a bonus payment is to occur in the future and is contingent on events that have not yet occurred.

Transmission of business 

The Guide provides helpful practical guidance on how the Act's ‘deeming provisions' operate in circumstances where service across multiple employers within a business is considered continuous service for the purpose of the Act. 

The Guide clarifies that for a transmission of business under s 4(11)(c) of the Act to have occurred under the Act, four conditions must be met:

1. the worker must have been employed in the whole or part of a business, undertaking or establishment; 
2. there must have been a change in ownership via transfer, succession, conveyance or assignment; 
3. the new business must bear the same character as the old business (noting that some indicators of this set out in the Guide include, conducting the same main activity, carrying the same ABN, name or assets); and
4. the worker must continue working for the new business.

The Guide also provides specific guidance on another related deeming scenario where two corporations are related and where a worker is transferred between them.

Service performed outside New South Wales 

A common question for employers with mobile or nationally deployed workforces is whether service performed outside NSW counts towards a worker's continuous service under the Act. Case law in this area, relevantly, Wipro Ltd v New South Wales [2022] NSWCA 265, which found that the assessment of whether there is a ‘substantial connection' is to occur during the service rather than retrospectively. 

The Guide outlines the ‘substantial connection' test that we have seen across cases in recent years, providing that for work performed outside NSW to count as service under the Act, it needs to have a substantial connection with NSW when it is performed. 

The Guide identifies a non-exhaustive list of factors that may evidence this ‘substantial connection', including whether: 

• the contract of employment was made in NSW and is governed by NSW law; 
• the employer is based in NSW; 
• the employer directed the worker to work outside NSW; 
• the worker has responsibility for, or is reporting to, a team or person based in NSW; and/or
• the worker's service outside NSW is intended to be temporary.

The FAQs have also been updated to reflect this guidance and also include some examples for employers.

The release of the Guide and updated FAQs represents a development for employers navigating the complexities of the NSW LSL regime. While the Guide does not change the law, it provides a level of practical detail that has not previously been available and, importantly, reflects the preferred position of NSW Industrial Relations as the regulator responsible for administering the Act. Employers should take this opportunity to review their current LSL policies, calculations and record-keeping practices to ensure alignment with the guidance. 

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.