In the world of payroll, Long Service Leave (LSL) is one area that has the potential to create many headaches for employers.
Not only can it be an afterthought following modern award and enterprise agreement compliance, there are also several competing factors that can make LSL a compliance minefield.
LSL compliance relies upon understanding the interplay between state-based legislation, industrial instruments (awards and enterprise agreements), the National Employment Standards, and sometimes, internal policies as well. In totality, this creates a complex system that leaves employers at risk of not providing the correct entitlements to their staff.
Challenge #1: LSL is a state-by-state proposition
For businesses with a national workforce, the first hurdle they will encounter revolves around the legislation governing LSL, which is distinct in each Australian state and territory.
While it may seem amazingly antiquated by modern standards, there is a specific reason why LSL entitlements differ in each jurisdiction. In short, LSL laws have their roots in a historical tradition, established by calculating the length of time it would take civil servants to return to England by ship after serving 10 years in their respective states.
It may be 2024, but this tradition continues, adding another layer of complexity of today’s industrial relations landscape.
Depending on the state, the duration of leave provided can differ. State legislation can also vary in relation to the rate at which leave is paid, accrual calculation methods, and the final payment upon termination of employment, which can vary depending on the reason for termination.
Challenge #2: The relationship between LSL and enterprise agreements
Different entitlements and rules throughout Australia and across industries have the potential to create confusion, particularly for businesses operating in various states and territories or covered by multiple enterprise agreements.
These agreements can encompass various entitlements and accrual methods for LSL, and entitlements can differ based on factors like employment status or qualifications. Many agreements feature hybrid structures, blending state-based legislation with negotiated LSL entitlements, evolving over time through negotiation between employees, their union, and the employer. All of these factors need to be considered when incorporating LSL into compliance frameworks.
Challenge #3: Payroll systems are not built for Australia
Compounding these issues further is the fact that enterprise payroll systems are often provided by global vendors and do not specifically cater for the intricacies of the Australian legal environment. In instances where Australian requirements will not neatly fit into these systems, manual workarounds (such as using spreadsheets for calculations) are frequently required. This in turn increases the risk of human error, impacts scalability, and adds to the time and resources needed to calculate entitlements correctly.
Overcoming the challenges: LSL might be archaic, but a modern solution is what’s needed
The increasing public scrutiny of underpayments by large businesses has made reputation risk management a top priority for boards. These underpayment cases often reveal broader systemic issues with far-reaching financial implications, and LSL looms as the next flash point, should businesses not act soon.
The complexities associated with LSL compliance have motivated Yellow Canary to develop a Long Service Leave compliance tool that automates compliance reviews, accurately calculating LSL balances and payments according to state legislation and enterprise agreements.
For employers who have yet to assess their organisation’s LSL compliance, the time to do so is now. Whether you engage with solutions such as ours, or simply begin examining how well equipped your management team is to handle your organisation’s LSL compliance risk, those who take action will find themselves in a significantly more secure position in the future.
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