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If you have recently purchased a business, you will need to consider the existing employees’ leave entitlements if they continue to stay on. Additionally, as these employees have decided to stay on despite the change in ownership, they may be very loyal to the business. Therefore, to encourage their continued loyalty, you must ensure that you understand and uphold their entitlements, including those relating to:

  • public holidays;
  • sick leave or personal leave;
  • parental leave;
  • long service leave; and
  • annual leave.

This article will go through how you can calculate your employees’ long service and annual leave entitlements.

Long Service Leave Entitlements

Under Australian law, you owe an employee who has completed at least ten years of service two months’ (8.67 weeks) paid long service leave. This entitlement applies to most employees in New South Wales (NSW) who are:

  • full-time;
  • part-time; or
  • casual employees.

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 ten years of service, NSW employees are also entitled to one month of long service leave. Long service leave is governed by NSW Industrial Relations.

Accordingly, when you calculate the accrued 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.

You should also note that the Long Service Leave Act provides for certain employees to be entitled to pro rata long service leave outside of this requirement. This is if their employment ends due to:

  • illness, incapacity or domestic necessity;

  • their termination for any reason other than serious and wilful misconduct; or

  • their death.

This means that they will not need to fulfil the 10 years of service requirement. Instead, they will only need to fulfil a requirement of five years of service. You should keep this exception in mind if you have any employeees who are in pressing circumstances to which the Act may apply.

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:

  1. multiplying the weekly allowance by the years of completed service as at the date of purchase; and
  2. 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:

  1. multiplying the long service leave entitlement by the employee’s ordinary hours of weekly pay.

NSW Industrial Relations provides an online calculator to calculate an employee’s long service leave.

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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 ordinary hours.

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

It is worth noting that when an employee takes annual leave, they continue accruing annual leave while they are away.

Employment agreements may change these leave entitlements but they can only grant employees more leave than necessary under the law. 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 been employed by the business (i.e. since they started working in the company) 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 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

As an employer, abiding by the law and relevant national employment standards is crucial. 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, contact LegalVision’s employment lawyers on 1300 544 755 or fill out the form on this page.

Frequently Asked Questions

What is long service leave?

As an Australian employer, you owe an employee who has completed at least ten years of service two months’ (8.67 weeks) paid long service leave. For every five years after the initial ten years of service, NSW employees are also entitled to one month of long service leave.

What is annual leave?

Annual leave accrues with every year of service, according to the employee’s ordinary hours. Your employment agreements cannot take away these leave entitlements.

How do I calculate leave entitlements?

NSW Industrial Relations provides an online calculator to calculate an employee’s long service leave. The Fair Work Ombudsman offers an online calculator to calculate employees’ annual leave.

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