'Determining whether a period of time counts as continuous service can be confusing,' says lawyer
Employers need to be careful when calculating long service leave to determine whether they have met the required state and/or territory legislation.
Mosaic Brands Limited, which has in excess of 1,100 stores Australia-wide, was recently fined $29,000 for underplaying leave entitlements to 223 workers.
The company pled guilty to 324 offences blaming ‘payroll system errors’ for the chronic underpayment.
In addition to paying the fine, Mosaic Brands committed to engaging with an independent third party that will audit their compliance with long service leave legislation.
In addition, Optus Administration Pty Ltd recently lost an appeal to overturn a 2021 decision with regards to paying long-service leave. Optus was found to have underpaid five workers between $650 and $1900 each after incorrectly excluding some period of unpaid leave.
Why the miscalculations around long service?
A big reason for miscalculating long service leave is a lack of understanding around the definition of continuous service, Jo Alilovic, director, 3D HR Legal, said.
“For example, employers may not correctly count a period of service, or believe that an absence has broken service such that accrual was required to restart because of parental leave, or potentially working overseas for a related company.
“Other calculation errors occur when employers fail to include service as a casual employee, or employers fail to calculate the average hours of work over the period of service rather than just the hours at the time of taking the leave, or the wrong rate of pay is applied such as employers incorrectly average the rate over the period of service or fail to include allowances which are payable when leave is taken.”
Different rules for different states and territories
The rules governing long-service leave differ in each state and territory as well as from industry to industry, which is employers need to understand the rules in order to ensure they pay their employees correctly.
In general, an employee accrues long-service leave entitlements based on their continuous service with the same employer,” Scott Stevens, lawyer, 3D HR Legal, said.
“Long-service leave can then be taken once an employee reaches a set number of years continuous service. For example, in Western Australia, an employee is entitled to 8.67 weeks long service leave after 10 years, and in South Australia, it is 13 weeks after 10 years.
“Other rules include when an employee is entitled to be paid accrued but unused long-service leave on termination. This can depend on the years of continuous service. For example, pro rata accrued long-service leave is often paid on termination after more than seven years and the reason for termination of the employee’s employment will determine whether long service is paid at all. If an employee is terminated for serious misconduct, this may exclude him/her from this entitlement.”
Why do employers get confused about long-service leave?
As long-service leave rules change per state and territory, it is not surprising that if an employer has not set up their payroll system accordingly, they may miscalculate what they are required to pay by law.
This is why it is imperative for employers to ensure they comply with the relevant laws to avoid ending up in the Fair Work Commission or court facing big fines.
“Determining whether a period of time counts as continuous service can be confusing,” Stevens said. “Certain absences count towards continuous service, including paid annual or sick leave. Other absences don’t count but do not break continuous service, such as unpaid parental leave and some seasonal work for casuals.
“Each state has different considerations for considering if breaks in service are counted or do not break continuous service, such as overseas work with an associated company of the employer or absence on workers compensation.”
When a business is sold, long-service leave will usually transfer with an employee who continues to be employed, he said, “and service with the old employer will count as service with the new employer.”
Employer tips for handling payroll
Employers can potentially save themselves a lot of trouble by having the right qualified people, such as accountants and bookkeepers, undertaking their payroll in consultation with human resources and even legal advice.
This way, cross checking is in place, reducing potential errors.
“The three big tips for ensuring compliance with long service leave are: firstly, knowing which long-service leave legislation applies such as the general provisions in your state or territory or an industry specific scheme,” Alilovic said.
“Secondly, understanding what counts for continuous service or breaks service; and thirdly, keeping detailed and accurate records of hours of work and rates of pay throughout employment to ensure accuracy of calculations.”
