New Victorian Long Service Leave Law Passed:

Time to prepare

On 15 May 2018, the Long Service Leave Act 2018 was assented to after it passed the Upper House of the Victorian Parliament (2018 Act). The 2018 Act became law on 1 November 2018.  The 2018 Act does not alter the rate at which Long Service Leave (LSL) accrues, but it does make significant changes to LSL that will have practical implications for businesses operating in Victoria. 

The current law in Victoria

1. Full time, part time and casual employees can accrue LSL based on continuous employment.  (SAME)
2. LSL accrues at a rate of 1 week for each 60 weeks of continuous employment (approximately 0.866 weeks per year).(SAME)
3. Employees are entitled to take LSL after 10 years’ continuous employment (SEE NEW) but employees ceasing employment after 7 years’ continuous service must be paid an amount equivalent to the value of the LSL they have accrued on termination of their employment.
4. LSL cannot be cashed out. It is an offence by the employer and employee to pay or receive cash in lieu of LSL,(SEE NEW).
5. If a business is sold and an employee remains with the business, the new employer must recognise employees’ continuous employment with the old employer, (SAME).
6. If an employee’s ordinary hours of work fluctuate in the 12 months before they take LSL they will be paid their LSL based on either the average hours they have worked over the past 12 months or the average hours they have worked over past 5 years – whichever is greater. (SEE NEW).  

The new law in Victoria

Key features of the 2018 Act, which repeals the 1992 LSL Act, are as follows:

 Employees will be allowed to take LSL after 7 years’ continuous employment instead of 10 years.

1. Employees will be allowed to take LSL one day at a time. Under the 1992 LSL Act, employees are only allowed to take LSL in longer blocks. This may be a welcome flexibility for employers.
2. Up to 52 weeks of unpaid parental leave is included when calculating an employee’s continuous employment, and unpaid parental leave in excess of 52 weeks does not break continuity of employment (not so under the 1992 LSL Act).

If an employee is re-employed within 12 weeks of termination due to dismissal or resignation, expiry of a specified term contract or completion of their apprenticeship, their employment is taken to be continuous (under the 1992 LSL Act, this only applies if the employee is dismissed).

If an employee’s ordinary hours of employment fluctuate in the 2 years before they take LSL the hours they will be paid their LSL upon is the greater of the average hours they have worked over the past 12 months, the past 5 years or over the entire period of their employment with the employer. 

 Penalties for a body corporate for failure to pay LSL are increased from a maximum of 20 penalty units ($3171.40) under the 1992 LSL Act to 60 penalty units ($9514.20) under the 2018 Act. Criminal rather than civil penalties will now apply for taking adverse action against an employee because s/he is entitled to LSL and for failing to disclose that an employment agreement would modify or remove an employee’s LSL entitlements. Authorised officers will have new powers to compel the production of documents from employers (but they will still not have right of entry powers). 

7. Payments in lieu of LSL are to be permitted in Victoria if provisioned to occur in accordance with an enterprise agreement or other relevant fair work instrument, e.g. Award.  Payments in lieu of LSL are not permitted to Award free employees ²

Key messages for employers

• Now is the time to review and update any relevant policies and procedures (including payroll systems) to ensure LSL entitlements will be correctly calculated and administered once the new law takes effect.
• Remember that if LSL entitlements are not paid correctly on cessation of employment, employers are liable for penalties and interest until the payment is rectified.
• Keep copies of all records that may be relevant to an employee’s entitlement to LSL to ensure that entitlements are correctly calculated, and you can defend any claims as necessary.
• If purchasing a business, ensure you take LSL accruals into account when negotiating a purchase price and obtain appropriate warranties and indemnities from the vendor.