How Do I Calculate Employees’ Leave Entitlements?

If you have just purchased a business and employees from this business under the previous owner have decided to stay on with you, you may have obligations to provide these employees with certain leave entitlements. You must be aware of the entitlements you owe your employees under Australian law. Additionally, these employees may be loyal to the business, which is why they have decided to stay on despite the change in ownership. Therefore, to encourage their continued loyalty, ensure you understand and uphold their entitlements.

Long Service Leave

Under the Long Service Leave Act, you owe an employee who has completed at least 10 years of service two months’ (8.67 weeks) paid long service leave. This entitlement applies to most full-time, part-time or casual employees in New  South Wales (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.

Accordingly, when you calculate 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

Firstly, you must find out how many weeks’ allowance you must pay. You can do this by:

1. 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; and
2. multiply the number of years of employment by 8.667.

You can then find out their long service leave entitlements by:

3. multiplying the weekly allowance by the years of completed service as at the date of purchase; and
4. deducting any period of long service leave that the employee may have already taken.

Finally, you need to calculate how much you will have to pay an employee during their long service leave. Do this by:

5. 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.

Annual Leave

In addition, you will need to provide your employees with annual leave. This type of leave accrues with every year of service, according to the employee’s hours.

For example, you must grant full-time employees four weeks’ of annual leave for every year of service. Part-time employees will be entitled to annual leave on a pro rata basis.

Employment agreements may change these leave entitlements but they can only grant employees more leave than necessary under legislation. Employment agreements cannot take away leave entitlements prescribed under law.

How to Calculate Annual Leave Entitlements

To calculate annual leave, follow these steps:

1. multiply the number of weeks that the employee has worked for the business by 2.923 (this will give you the total hours of annual leave that the employee has accrued);
2. deduct any annual leave that the employee has already taken; and
3. multiply this amount by the employee’s hourly rate of pay.

The Fair Work Ombudsman offers an online calculator to calculate employees’ annual leave.

Key Takeaways

You owe employees who have worked for your business for more than 10 years long service leave. In addition, you must provide full time and part time employees with annual leave. However, calculating employees’ leave entitlements can be tricky, despite the mathematical formulas readily available to you.

To ensure you are complying with your employees’ leave entitlements, get in touch with LegalVision’s employment lawyers on 1300 544 755 or fill out the form on this page.