Changes to the Victorian Long Service Leave regime: What you need to know
Effective from 1 November 2018, the current Victorian Long Service Act 1992 will be replaced by the Long Service Leave Act 2018 (2018 Act). While the new law does not alter the rate at which long service leave (LSL) accrues, it does make significant changes to LSL entitlements that will have practical implications to businesses operating in Victoria.
Both employers and employees should be aware of the upcoming changes to the Victorian Long Service Leave rules, which are summarised below.
1. Entitlements to take LSL
Under the current law, employees are only able to take LSL after 10 years of continuous employment with one employer (although if they reach 7 years of continuous employment, they are eligible for a pro-rated payout of LSL on termination of their employment).
Under the new law, employees will be able to take LSL after 7 years of continuous employment with one employer.
However, the LSL accrual rate will remain unchanged at 1/60th of an employee’s total period of continuous employment with one employer less any LSL taken during that period.
Accordingly, although employees can now apply to take their LSL earlier, the change in law will not increase an employee’s entitlement or an employer’s cost.
2. Leave Period
The current law requires LSL to be taken in one period unless the employer and employee agree to separate periods. If such an arrangement exists, an employee may take the first 13 weeks of LSL they are entitled to up to three separate periods and any further LSL may be taken in two separate periods.
In contrast, the new law allows for employees to request to take one day or more of LSL with no limit on the number of periods. This gives employees greater flexibility, particularly when transitioning to retirement.
For example, under the current law an employee who has accrued LSL and is nearing retirement is unable to reduce their work hours by taking their LSL to ease into retirement. The employee must either wait until retirement and receive a payment in lieu or, alternatively, take the LSL in one single block (subject to any other arrangements).
However, from 1 November 2018 the employee has more flexibility, and (subject to agreement with their employer) could seek to take their LSL for one day per week, working a four-day week for a time leading up to their retirement, without the loss of pay or reduction in superannuation. This would also reduce the LSL payment that the employer is required to make at the time of the employee’s retirement.
3. Continuity of employment – Unpaid Parental Leave
Under the current law, any form of unpaid parental leave up to 12 months (or longer if agreed by the parties or the employee is otherwise entitled) will not break an employee’s continuous employment; however, LSL will not accrue during this period. In other words, the unpaid parental leave will not be included in the period of employment and the employee will need to make up that time to get to 10 years of service. Additionally, where an employee takes more than 12 months of unpaid parental leave, the employee will not be regarded as “continuously employed” which may affect their LSL entitlements.
Under the new law, any period of unpaid parental leave will not break the continuity of employment and the first 12 months of that leave will be included when calculating an employee’s period of continuous employment. This means employees who take unpaid parental leave for a period of up to 12 months will still be able to count that year of unpaid leave when calculating their LSL entitlements.
Note: there are transitional arrangements in the 2018 Act so that the new parental leave arrangements only apply to parental leave taken after the commencement of the operation of that Act.
4. Calculating leave
Under the current law, an employee’s LSL entitlement is based on their normal weekly hours at the time the leave falls due; or is to be paid out. In some cases, an employee’s hours may vary from week to week (e.g., casual or seasonal employment). In such cases, an employee’s hours for calculating LSL will be an average of the weekly hours measured over the past 12 months or the preceding 5 years – whichever is greater.
The new law retains the current averaging arrangement but adds a third option, whereby if an employee’s working hours have changed in the last two years before the LSL, the hours worked are averaged over the entire period of continuous service, with the employee entitled to the greatest of the three averages (i.e., the average hours worked over past 12 months, past 5 years or the entire period of continuous employment).
5. Business transfer
Under the current law, if an employee’s employer transfers business assets to another employer who continues the employment of the employee, the employee who performs duties in connection with the assets is treated as being employed by ‘one employer’. However, this only applies to tangible assets such as land, plant and equipment. The implications of this is that where no physical assets have transferred as part of a business sale, an employee’s employment with the first employer (i.e., the vendor under the business sale) may not count towards their period of continuous employment.
Under the new law the provisions dealing with transfers of business have been expanded to include both tangible and intangible assets. This change means that where the employee moves with the underlying business, that employee should be entitled to have their prior employment service recognised for the purposes of working out their LSL entitlement.
What should employers do now?
Any contravention of the new law is an offence by employers and officers of employer companies, and will result in penalties and interest being applied (including criminal conviction). Accordingly, now is the time for employers to review and update their LSL policies and procedures (including payroll system) to ensure that LSL entitlements will be correctly calculated and administered once the new law takes effect.
Amy Bignell, Senior Accountant
MBA BUSINESS SOLUTIONS