Long service leave (LSL) compliance is a critical yet often challenging aspect of compliance. The intricate web of legislation and its interaction with industrial instruments, coupled with the potential consequences such as reputational damage, penalties, and employee dissatisfaction, makes addressing these challenges essential for mitigating risks and maintaining a strong governance framework.
In this blog, we examine what LSL compliance entails, discuss the three most common hurdles businesses encounter, and provide some strategies to effectively navigate LSL.
What is long service leave (LSL) compliance?
LSL is an entitlement that rewards employees with a period of paid leave after a prolonged period of continuous service with the same employer, typically ranging from five to fifteen years.
These regulations dictate several key aspects, including:
- Accrual: The rate at which employees accrue LSL, which depends on the specific terms of employment agreements.
- Eligibility criteria: The length of continuous service required before an employee becomes eligible for LSL.
- Leave duration: The amount of leave an employee is entitled to once they qualify for LSL.
- Payment calculations: The method for calculating the rate of pay during LSL, including factors such as ordinary pay, average weekly earnings, or bonuses.
- Treatment upon termination: The requirements for paying out LSL upon termination of employment, which depends on the reason for termination.
What are the challenges of long service leave (LSL) compliance?
Despite the key aspects of, and importance of maintaining compliance with LSL, there are challenges employers will face.
- Adhering to state-based legislation
Legislation governing LSL is distinct in each Australian state and territory. Looking back at LSL’s origins, these regulations have historical roots, stemming from the tradition of calculating the time required for civil servants to return to England by ship after serving a decade in their respective states. This tradition continues today, contributing to the complexity of the current industrial relations landscape. As we have identified several aspects of LSL compliance above, they all vary depending on the Australian state where the employee is employed, making LSL calculations more complicated.
- Enterprise Agreements (EAs) include varying methods for LSL
Various entitlements, rules and industries create confusion, particularly for businesses operating in multiple states and territories or under multiple EAs. EAs may include diverse entitlements and accrual methods for LSL, with differences based on employment status or qualifications. In addition, agreements may feature hybrid structures that blend state-based legislation with negotiated LSL entitlements, evolving over time through negotiations between employees, their union, and the employer.
- Challenges with payroll systems
Enterprise payroll systems, often provided by global vendors, are not specifically designed to handle the intricacies of Australian legal requirements. Consequently, manual workarounds (such as using spreadsheets for calculations) are frequently necessary, increasing the risk of human error and affecting scalability.
How can employers navigate LSL compliance?
- Implement robust policies and procedures
Developing and maintaining comprehensive LSL policies is essential for compliance. These policies should be detailed and tailored to reflect the specific legislation of each state where the business operates, as well as any relevant industrial awards and enterprise agreements. Regular internal audits are crucial for identifying and rectifying compliance issues before they escalate.
By establishing clear, consistent procedures and conducting periodic reviews, businesses can proactively manage LSL compliance, reduce the risk of errors, and make sure that employees receive their rightful entitlements.
- Enhance communication and documentation
Regular updates about legislative changes and company policies help manage expectations and foster a culture of trust and transparency. Employee service periods, leave accruals and payments should be meticulously documented. This not only facilitates compliance but also provides a reliable reference point in case of disputes.
Transparent communication and meticulous record-keeping by employers' help create an environment where both employees and the organisation are well-informed and protected.
- Include LSL compliance in risk assessments
Including LSL compliance in regular risk assessments allows businesses to pinpoint potential areas of concern and formulate effective mitigation strategies. Additionally, board oversight makes sure LSL compliance is consistently reviewed and prioritised on board agendas. Incorporating LSL compliance into risk assessments makes sure that it receives the appropriate focus and attention at the highest levels of the organisation.
- Leverage technology
Investing in specialised software solutions, such as Yellow Canary’s LSL compliance tool, can significantly simplify the complex task of LSL management. These automated tools can precisely calculate LSL balances and payments based on different state laws and industrial agreements, minimising the need for manual calculations, and reducing the likelihood of errors. Additionally, the data generated can provide valuable insights to detect discrepancies and potential issues with LSL pay.
By leveraging technology, businesses can improve accuracy, enhance scalability, and maintain LSL compliance. Marcus Zelter, co-founder and Managing Director of Yellow Canary, expresses the value the LSL compliance tool can bring to businesses:
“We've built the first dedicated, configurable, and automated long service leave engine on the market. This platform can calculate entitlements, accruals, balances, and payments that are made for long service leave in accordance with state-based legislation, employer policies and industrial instruments to six decimal places of precision.”
Act now to safeguard tomorrow
The constant public scrutiny of underpayments has made reputation risk management a top priority for boards. Underpayment cases often reveal broader systemic issues with far-reaching financial implications, with LSL seemingly the next focal point. For employers that have yet to interrogate their organisation’s LSL compliance, the time to do so is now.
Yellow Canary’s Long Service Leave compliance tool is market-first and the only automated solution on the market that accurately calculates LSL balances and payments according to state legislation and industrial instruments. Learn more about how our tool can become an essential part of your governance framework.
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