If you have just purchased a business and employees from this business under the previous owner have decided to stay on with you, you might have obligations to provide these employees with certain leave entitlements. You should be aware of any such entitlements since they must be granted to employees under Australian law. Also, these employees may be very loyal to the business, which is why they have decided to stay on despite the change in ownership. To encourage their loyalty to the business it is a good idea to ensure that you grant them the benefits that they are entitled to.
Long Service Leave
Under the Long Service Leave Act, an employee who has completed at least 10 years of service is entitled to 2 months (8.67 weeks) paid long service leave. This entitlement applies to most full-time, part-time or casual employees in NSW. The rate that must be paid for this leave period should be the weekly wage that the employees earn on an ordinary basis. For every five years after the initial 10 years of service NSW employees are also entitled to one month of long service leave.
This means that when calculating the long service leave entitlements of your employees, you need to calculate the entire duration of their employment up to and including the day that you purchased the business.
How to Calculate Long Service Leave Entitlements
First, you must find out how many weeks allowance you must adjust. This is done by:
- calculating the years that they have been employed by the business exactly (including decimals). The duration of employment will be from the day that they began working with the business up until and including the day that you officially purchased the business.
- you then multiply the number of years of employment by 8.667.
You can then find out the long service leave entitlement by:
- multiplying the weekly allowance by the years of completed service as at the date of purchase.
- deducting any period of long service that the employees may have already taken.
You then need to find out how much you will have to pay these employees during their long service leave. This is done by:
- multiplying the long service leave entitlement by the employee’s ordinary weekly pay.
NSW Industrial Relations provides an online calculator to calculate an employee’s long service leave.
How to Calculate Annual Leave Entitlements
You will also have to provide your employees with annual leave. This type of leave accrues during a year of service according to the employee’s hours of services. For example, under Australian law, full-time employees are entitled to four weeks worth of annual leave for every year of service. Part-time employees will be entitled to a different amount of annual leave per year of service.
Employment agreements may change these leave entitlements but they can only grant employees more leave than is stipulated under legislation. Employment agreements cannot take away leave entitlements prescribed under law.
How Do You Calculate It?
To calculate annual leave, you can follow these steps:
- multiply the number of weeks that the employees have worked for the business by 2.923
- this will give you the total hours of annual leave that the employees have accrued
- deduct any annual leave that the employees have already taken
- multiply this amount by the employees’ hourly rate of pay
The Fair Work Ombudsman offers an online calculator to calculate employees’ annual pay.
Employees who have been employees for over 10 years by the same business are entitled to long service leave. When you purchase a business, it is good practice to recognise these entitlements. However, calculating employees’ long service leave entitlements can be a little tricky despite the mathematical formulas readily available to you.
If you need further advice about ensuring that you are calculating leave entitlements correctly and your employees are receiving the correct entitlements under Australian law, call LegalVision’s employment lawyers on 1300 544 755 or fill out the form on this page.
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