Introduction
When it comes to Aussie rules, there’s plenty of them. This applies to long service leave and annual leave allowances, just like other aspects of Australian employment practice. Employee leave entitlements are a crucial aspect of workplace rights in Australia, ensuring that workers have the necessary time off for rest, personal matters and long-term service recognition
Correctly managing such entitlements is key for any payroll team and has an obvious knock-on payroll cost. Understanding the differences between long service leave and annual leave is important for both employers and employees, so teams maintain compliance with stringent employment laws, avoid legal or financial ramifications and control payroll costs. All while, vitally, making sure your people are happy.
What is annual leave?
Put a shrimp on the barbie, it’s holiday time. Annual leave, commonly referred to as holiday leave, is a standard entitlement for all employees under Australia’s enshrined employment legislation: the National Employment Standards (NES). This ensures employees get regular breaks from work for rest, relaxation and living their life.
According to the NES, full-time employees are entitled to four weeks of paid annual leave during each full year worked. Part-time employees receive a pro rata amount based on their hours of work. Annual leave accrues progressively throughout the year, based on the number of ordinary hours worked. The calculation for accrual is straightforward: for every 52 weeks worked, employees accrue four weeks of leave.
Employees can take annual leave at a time agreed upon with their employer. However, employers cannot unreasonably refuse a request for annual leave. It’s also common for businesses to have policies detailing notice periods and peak times when leave might be restricted.
What is long service leave?
For those employees who’ve been around a while, long service leave is a distinct entitlement that recognises extended service with the same employer. Companies use it to reward long-term loyalty and offer a big break after many years of continuous employment. Historically, long service leave has its roots in the federal pre-modern era of Australia, initially formulated to give workers time to travel back to their home country. Today, it remains a significant part of Australian employment law, emphasising the value placed on long-term service.
The amount of long service leave will vary across Australia’s states and territories but, generally, employees are eligible after 7 to 10 years of continuous service. For example:
- In New South Wales, employees are entitled to 8.67 weeks of leave after 10 years of service.
- In Victoria, after 7 years of continuous service, leave accrues at one week for every 60 weeks served or 0.866 of a week each year.
Calculation of long service leave is typically based on the length of continuous service with an employer, which can be taken as a single block or in smaller periods. To find out more about allowance for specific states, check out the Fair Work Ombudsman.
The key differences between long service leave and annual leave
Understanding how annual leave and long service leave differs is important for any payroll team. Payroll costs need to be calculated correctly, for both financial and legal reasons. This is alongside your obligations to ensure you create a transparent, supportive workplace.
The main distinctions between annual leave and long service leave can be laid out as follows:
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Purpose |
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Eligibility |
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Accrual rate |
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Conditions of use |
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As you can see, annual leave entitlements are ratified in country-wise NES legislation, whereas long service leave entitlements are set at a regional level. Therefore, long service leave eligibility differs depending on whether you’re in the outback or another Australian territory. Localised long service leave entitlements mean differing accrual rates according to the state an employee works in, so payroll costs in Melbourne may be wildly different to Tasmania. Payroll teams for national companies with people working across Oz must consider these regional differences to ensure correct compliance and payroll costings, wherever workers are based.
Apart from regional differences, other factors can come into play when comparing annual leave and long service leave. Some industries have specific long service leave entitlements, including the government, police or military. Within the framework of NES rules, companies can create their own system. Once any minimum leave obligations have been met, individual companies can put into practice their own annual leave or long service leave policy. Such benefits are good for incentivising and rewarding committed team members, as well as attracting and retaining talent by offering extra aspects to any job offer package.
Overlap and interaction between long service leave and annual leave
Like a payroll Venn diagram, in certain situations, entitlements for annual leave and long service leave may overlap and teams need to know how to manage this. Someone on long service leave may still accrue annual leave when they’re off, depending on your company’s agreed leave terms. So, knowing leave entitlements inside out is a big deal.
For any HR and finance team, correctly tracking this alongside payroll cost calculations is essential. Because taking one type of leave can scupper the accrual of the other. Taking extended annual leave might affect someone’s long service leave eligibility, if they have broken their continuous service. While understanding and upholding national, regional and company-wide standards is payroll 101, as human beings, we know that employees aren’t just numbers on a screen, so approaching leave entitlements on a person-by-person basis is important for any payroll team.
The impact and consequences on payroll costs and business finance
Every company knows the single biggest financial outlay is people. Annual leave and long service leave aren’t done in a vacuum, the impact on the bottom line is tangible, allowing for key differences in each:
- Annual leave
Week-in-week-out, annual leave defines payroll costs. Employers need to precisely account for accrued leave entitlements and manage company cash flow, covering the costs of employees taking their leave. Whether that’s coordinating team leave so there’s adequate cover or temporarily backfilling a role, where necessary. This all has impact on payroll cost and resourcing.
- Long service leave
Over the years, long service leave is a more substantial financial commitment for any organisation, due to the longer accrual period and the larger blocks of leave taken. Employers must plan for such long-term liability, guaranteeing funds are there to cover extended leave periods.
These days, Aussie employment law has some teeth. Not adhering to both annual leave and long service leave can result in penalties against companies and individuals, whether enforced at state or national level. It’s not just direct payroll costs, but indirect payroll costs for non-compliance, that need to be factored into business finance practices.
Common misconceptions and FAQs
Leave entitlements in Australia can be a complicated affair. Before we pack our cossies, sunnies and thongs… here are a few questions answered.
Can employees cash out their annual leave?
Yes, under certain conditions, employees can usefully cash out their annual leave, but this depends on specific company entitlements and requires a written agreement with the employer.
Can casual staff get annual leave?
No, as the employment lacks firm advance commitment from either party, so annual leave can’t be paid. Unpaid leave may well be an option, though.
Does long service leave reset if I change jobs?
Quick answer, long service leave does not transfer between employers. Some states do have long service leave transfer options for industries like construction, mining or government. It’s worth taking a look at the Portable Long Service Leave website for more information on keeping long service leave across different territories.
Can long service leave be taken in advance?
Yes, it’s possible. Some employers may allow early long service leave redemption, but this all depends on specific state rules and regs, as well as company policy in relation to an employee’s unique situation.
Conclusion
Clearly, annual leave and long service leave are the bread and butter of any payroll team. Time outside work is often one of the biggest motivations when we’re sat at our desks. Ensuring payroll manages leave entitlements accurately, seamlessly and compassionately is the very nuts and bolts of payroll good practice. This is where a great payroll management system pays dividends, metaphorically speaking. Keeping track of payroll costs, staff and ever-changing legislation is an all-encompassing challenge for any payroll team. When it comes to managing leave, Aussie rules are not just embedded nationally but differ state by state. A comprehensive payroll system from ADP understands these specific ins and outs, so your team can relax in the knowledge that holidays are sorted.
