National portable long service leave - what are the costs to your business?

by Victoria Bruce04 Mar 2016
The findings of a Senate enquiry into the possibility of a portable LSL scheme where employers carry their leave entitlements with them between employers have been released, sparking a new wave of debate among Australia’s business community.

Traditionally designed to reward employees who stayed with the one employer for a period of service, many say LSL in its current form is no longer practical in today’s modern workplace.

That’s because only one in four Australian employees stay with the same employer for 10 years, meaning LSL has become inaccessible to majority of Australian workers.

Unions and industry groups remain deeply divided on the issue of a portable LSL, with key issues including cost to employers, potential loss of entitlements by some workers and the challenge of the multi-jurisdictional nature of current LSL arrangements.

While the Senate’s report falls short of any one solution, instead, recommending further investigation be done on the merit of a national scheme, lawyer Simon Clayer from HopgoodGanim says there are a number of potential benefits for employers.

“A national portable LSL scheme may be of real cost benefit for employers with employees working across different jurisdictions,” Clayer, a Senior Associate, told HC Online. 

“For example, the South Australian Wine Industry Association (SAWIA) stated in their submission that determining long service leave entitlements for each relevant jurisdiction and payments far too often involves a degree of manual processing where employees in multiple locations are involved,” he says.

“SAWIA stated this is an example of unnecessary red tape, loss of productivity and costs for businesses of all sizes.”

That’s why it’s been argued that a national model could reduce complexity and compliance costs and overcome unnecessary confusion and administrative costs, particularly for employers who employ employees across state borders.

However, the national portable LSL scheme could create disadvantages in the form of additional administration costs for some employers, Clayer noted.

“These may be pronounced during transition periods for new schemes, the cost of providing benefits for employees who leave after a short period of service, and prefunding impact on business cash flows,” he says.

These additional costs may then have an impact on Australia's competitiveness, given the country’s relatively high labour market costs, and therefore have a knock-on effect to the community by affecting employment.

“One of the most significant disadvantages of establishing the portable LSL scheme is it makes what is currently a contingent or conditional liability (extended service being required for LSL) into an absolute liability (LSL is payable on all hours worked, from day one of employment),” Clayer says.

“As we have disparate LSL schemes across states, setting a uniform standard based on an average of the current range of entitlements could result in some employers having higher costs and some employees receiving lower entitlements than under their current arrangements.”

The Senate committee found that submitters and witnesses to this inquiry are deeply divided on the issue of portability of LSL.

“Some firmly believe that LSL should be portable for all workers, whilst others are of the view that portability should not be extended under any circumstances,” the Report stated.

“The key challenge in establishing a national long service leave standard is that state and territory governments maintain primary responsibility for long service leave entitlements.”

The Senate advised that in order to achieve a national standard, the state and territory governments will need to reach consensus on the provisions, such as the quantum of leave and qualifying periods.

The main challenge will be the different long service entitlements between jurisdictions.

The potential cost for employers is another issue of vital significance as the question remains: who will pay for these entitlements?  

The Senate committee acknowledges that nationalising the LSL standard is not a simple matter, and that states, territories and the commonwealth would need to work together to reach an agreement that should not impose a prohibitive cost burden on employers or result in any workers being worse off under a new scheme.

One of the Report’s key recommendations is for the government to undertake detailed modelling to determine the potential cost to employers of extending portable LSL entitlements to all workers.

“This should involve consideration of the cost of staff turnover including rehiring, training and loss of corporate knowledge, against the cost of establishing a portable LSL scheme,” Clayer says.
Similar stories:
Long service leave - use it to your advantage
What does the Fair Work Amendment Bill mean for employers?
PM urged to address business issues
Change management - how to prove you're the best


  • by Jokr 7/03/2016 12:25:36 PM

    Why doesn't it get outsourced like superannuation? If you bounce around from job-to-job you only get what you put in (like defined contribution), if you stay at one employer for the whole 10 years you get an equivalent of defined benefit.

Most Read