Now before 10,000 Australians abuse me, I am stating that I hate long service leave (LSL) because it is not a leave entitlement provided in New Zealand legislation. However, it’s relatively common to see LSL as an additional leave entitlement provided to the employee in older businesses, as well as larger ones or those that are an offshoot of an Australian company.
If an employer provides LSL to an employee, it is an agreed term and how they qualify and what they are paid is all by agreement.
At NZPPA we get asked the same four questions all the time from employers and payroll that provide LSL.
- What is the timeframe to get LSL?
As it is not provided by law, you set it as part of the agreement. Just keep in mind whether employees or even the business will be around in 20 years!
- Is LSL part of gross earnings for Holidays Act calculations?
Yes, as it is an agreed term and a taxable payment, it must be part of the gross earnings for leave.
- What rate should it be paid at?
Again, this is an agreed term and the rate is based on what is agreed. Take a hint though and don’t use AWE vs. OWP provided under the Holidays Act as this is a nightmare! Keep it simple and pay it at the ordinary rate of pay.
- Can it be paid out instead of being used?
As an agreed term then the first thing to check is what has been agreed. But this might defeat the purpose of providing an additional leave entitlement to simply allow for it to be cashed up! Also, if you allow it to be paid out on termination it will add to the 8% on termination that is required under the Holidays Act.
So, to make this work for a modern business here are some pointers:
- Set the rate (base it on the employee’s ordinary rate of pay).
- Set a reasonable timeframe that is realistic for how long an employee will stay in your business (which in today’s world is not 20 years).
- Add a performance measure to receive this additional leave entitlement along with a timeframe that ensures the business has received ROI in providing it.
- The employee has to take LSL with no option to have it paid out while employed or on termination.
- Account for this in the overall cost of the Holidays Act as it will add to the cost of leave under that Act.
- Make it a special event in your business, celebrate it!
Of course, if LSL is already in place you cannot just change what has already been agreed. This post is more for those who are thinking about providing it to employees as a new entitlement.
So in conclusion, I have admitted to hating LSL. However, it can be made workable and a little less hated if it is modernised to fit today’s world and the needs of the business and of course the employee.
And please, please, please do not think about adding this to the Holidays Act 2003 as a new minimum entitlement!
NZPPA supporting NZ payroll since 2007!