- Payment when taking leave
- Payment in lieu of leave
- Payment upon resignation / termination / redundancy
- Payment upon death of worker
A worker is entitled to be paid at their ordinary weekly rate of pay whilst on long service leave. A worker's ‘ordinary weekly rate of pay’ is the worker's normal weekly rate of pay (exclusive of overtime, shift premiums and penalty rates) at the date on which long service leave is commenced or an entitlement to payment in lieu of long service leave arises.
Bethany works as the finance officer at the local health clinic. Her office manager, Lucy, has just advised that she will be off work for at least the next 3 months due to illness. Bethany has accepted a short contract to act up in the office manager role whilst Lucy is absent. Bethany already had 1 week long service leave booked for next month.
Whilst on long service leave, Bethany will be entitled to be paid at the higher (office manager) rate of pay as this will constitute her ordinary weekly rate of pay at the date her long service leave commences.
Payment when taking leave
Payment to a worker for a period of long service leave must be made:
- in advance for the whole period of leave, or
- on the same day as wages would normally be paid if the worker was at work, or
- in some other way agreed to by the employer and the worker, or
- immediately, if it’s a payment in lieu at the time of employment termination.
Increase to rate of pay during leave
If a worker's rate of pay increases during the period that they are being paid for long service leave or in lieu of long service leave, the employee is entitled to be paid the higher rate for the applicable weeks.
Mandy has reached 9 years' continuous service. Her daughter is getting married in London and Mandy has asked her employer, Katerina, if she may access some of her long service leave early to attend the wedding and to take a holiday. As Mandy would have reached her full entitlement in 4 months time, Katerina agrees. As requested by Mandy, she will take 8 weeks leave and receive payment on her usual pay day. Katerina puts the agreement in writing and both parties sign the document.
Half way through Mandy's long service leave, all workers receive a 2% pay rise. Mandy long service leave payments for the remaining 4 weeks of leave will be paid at the new rate of pay.
This rule applies even if the worker takes a payout in lieu of leave and continues working.
Conor has 16 weeks long service leave accrued. The company Conor works for has asked all workers with more than 12 weeks long service leave to consider either taking the leave or cashing out some of their leave. Conor ask his boss, Dan, if he could cash out 8 weeks of his entitlement. Dan agrees and the agreement is signed by both parties. 4 weeks after receive the lump sum a new workplace agreement comes in affect which gives each worker a 1.5% increase in salary. Conor is entitled not only to an increase in his wages, but also to be back paid the 1.5% increase on 4 weeks of his long service leave lump sum payment.
An increase in the rate of pay for leave is not applicable to lump sum payments made to workers who take a redundancy, have their employment terminated or resign. They are also not applicable to payments made to workers who have died. In all these instances, the worker's employment is considered to have been terminated.
Where a worker is normally provided accommodation by their employer, but not whilst on leave, the worker’s ordinary weekly rate of pay or their calculated average weekly rate of pay (for casual and commission workers) will need to be increased by an amount equal to the monetary value of the cost of that accommodation whilst on long service leave.
Payment in lieu of leave
On completion of ten years’ continuous service, a worker and their employer can agree to a cash payment in lieu of long service leave for either the whole, or part of, an accrued long service leave entitlement. This is often referred to as cashing out long service leave.
Prior to entering into any agreement to cash out long service leave, it is recommended that the worker seek information from the Australian Taxation Office regarding the amount of tax payable in relation to the cash payment.
When agreeing to ‘cashing out’ a long service entitlement, any such agreement must be recorded in writing and signed by both parties. A signed copy of this agreement must be provided to the worker and a copy placed in the worker’s service record.
The rate of payment will be at the worker's current ordinary weekly rate immediately before the payment is made. See the Australian Taxation Office website for details of tax implications on long service leave payments in lieu of leave.
When the payment is made to the worker, the employer must give to the worker a written statement setting out:
- worker’s name
- date of the written statement
- current entitlement of long service leave (expressed in weeks or fraction of a week in hours)
- payment amount
- the period of leave in lieu of which the payment is made
- the number of long service leave days (if any) that will remain due to the worker after the payment is made
- name of employer
- employer must sign and date notice.
A copy of this notice must be kept by the employer with the worker’s service record.
Theo currently has a significant amount of long service leave accrued and would like to take 4 weeks leave using his long service leave entitlement. However, Theo and his boss have back-to-back jobs booked for at least the next 6 months. Theo approaches his boss, Sam, to discuss his concerns.
Sam agrees it is a difficult situation, and suggests that if Theo is agreeable, Sam could instead pay Theo a cash amount equivalent to 4 weeks of Theo’s long service leave entitlement. Theo agrees to accept this payment in lieu of taking the time off work.
Sam and Theo record their agreement in writing, and both sign and date the Agreement, noting that this ‘cash’ payout will reduce Theo’s accrued long service leave entitlement by 4 weeks.
Sam provides Theo a copy of:
- the written agreement for Theo’s records
- the written statement outlining details of payment.
During their discussion Sam and Theo also agree to a date at which Theo can take his long service leave. This is recorded so Sam can plan jobs around Theo’s leave.
Payment upon resignation / termination / redundancy
If a worker terminates their employment, has their employment terminated by their employer or is made genuinely redundant prior to reaching 7 years of continuous service, then they will not have completed the required years of service to become entitled to pro-rata long service leave. Therefore, the worker will not be entitled to any long service leave payment upon termination.
If the termination or redundancy occurs after the worker completes 7 years of service, then the worker may be entitled to a pro-rata payment equal to the monetary equivalent of 1.3 weeks leave in respect of each completed year of service.
A worker is not entitled to a pro-rata payment if:
- their employment is terminated on the grounds of serious and wilful misconduct
- the contract of service is unlawfully terminated by the worker (such as failure to give the required amount of notice).
Long service leave entitlements are calculated according to the worker’s ordinary weekly rate of pay immediately before the worker’s service was terminated.
The employer must pay the worker the amount to which they are entitled immediately upon termination.
See the Australian Taxation Office website for details of tax implications on long service leave on termination.
Contract of service
All casuals work under a contract of service (even if a formal contract has not been signed). For workers employed under a series of contracts of service, termination occurs when the worker resigns or the employer determines that no further contracts will be offered to the worker. It is only at this point that the obligation to pay the worker's long service leave entitlement 'immediately upon termination' arises.
Example — Series of contracts
William has been a casual employee with Homeware Solutions for nearly 12 years. William took 8 weeks leave after his long service leave had accrued after 10 completed years of continuous service. William receives a new contract of service every 3 years so his contract is due for renewal this year.
William is keen to continue working with Homeware Solutions and signs a new contract when it is offered. As William is continuing his employment with Homeware Solutions, he is not paid out his remaining long service leave entitlement. Instead, it will keep accruing at 1.3 weeks per year of service.
Example — Ceasing a casual contract
Con has also been a casual employee with Homeware Solutions for nearly 9 years. Homeware Solutions in closing the store where Con works and he will not be redeployed to another store. Homeware Solutions notify Con that his employment will be terminated when the store closes. Con has completed 8 years of continuous service with Homeware Solutions.
When the Homeware Solutions store closes, they pay Con pro-rata long service leave equaling 10.4 weeks at the hourly rate that he was last paid plus the casual loading.
Termination for misconduct
Workers who have reached 10 years continuous service have a long service leave entitlement. This entitlement cannot be removed even if a worker is terminated for misconduct. A worker who is terminated for misconduct and who has reached 10 years continuous service will need to be paid out their full entitlement.
Payment upon death of worker
A worker's long service leave entitlement remains valid even after the worker has died. If the worker's death occurred prior to reaching 7 years of service, then they will not have completed the required years of service to become entitled to long service leave.
If the worker died after the worker had completed 7 years of service, then the worker's estate will be entitled to a payment equal to the monetary equivalent of 1.3 weeks leave in respect of each completed year of service.
Long service leave entitlements are calculated according to the worker’s ordinary weekly rate of pay immediately before the worker died.
The employer must provide a payment to the worker’s personal representative (often next-of-kin or executor) for the monetary sum equivalent to the long service leave entitlement accrued by the worker prior to their death.
If part of a long service leave entitlement has already been taken by the worker, or a payment in lieu of long service leave has been made to the worker, the employer will pay out the remaining entitlement to the deceased worker’s personal representative.
See the Australian Taxation Office website for details of tax implications on long service leave payments following the death of a worker.
See the Australian Taxation Office website for information on managing deceased estates.
Questions about your long service leave?
If you have read all of the long service leave information on our website and you still have questions or concerns about your entitlements or you need help to work out the correct entitlement, please complete our long service leave form.