Recent fines put Australian employers’ long service leave obligations in the spotlight

Each state and territory has its own legislation governing long service leave entitlements. This adds complexity and uncertainty to long service leave accrual and payment for national and international companies but does not free them from the penalties that can apply for non-compliance.

With the criminalisation of ‘wage theft’ soon to be imposed on employers - and a focus by state regulators on long service leave in particular - employers who don’t take proactive steps to ensure the accurate and timely payment of employee entitlements will be at significant risk of penalties and reputational damage. The Commonwealth Bank of Australia (CBA), for example, was recently in the spotlight for non-compliance relating to employee entitlements which resulted in AU$10 million (US$6.74 million) in penalties.

To ensure compliance, employers should pay close attention to the timing of their employees’ final pay, understand the legislative source of their employees’ long service leave entitlements, keep adequate records and undertake regular pay audits.

Fines involving late payment of employee entitlements

CBA’s AU$10 million fine for the underpayment of wages and wage-related entitlements of over AU$16 million was followed by its subsidiaries, CommSec and BankWest, each being ordered to pay penalties of AU$18,000 plus costs for failing to pay long service leave entitlements at the relevant time to 17 employees based in Victoria.

The Long Service Leave Act 2018 (Vic) (LSL Act) sets out the long service leave entitlements in Victoria. On termination of employment, any accrued but unused long service leave must be paid to the employee on the date their employment ends. Failure to do so is an offence under the LSL Act and each day of non-payment after termination constitutes a new offence, attracting a penalty of over AU$11,000 per day for a body corporate. 

The Wage Inspectorate Victoria charged CommSec and BankWest for offences relating to non-payment of accrued but unused long service leave entitlements to staff on the termination of their employment. CommSec entered an early guilty plea for failing to pay over AU$38,000 in long service leave entitlements to eight former staff, while BankWest pleaded guilty to an underpayment of over AU$22,000 to nine former staff.

The total penalty imposed would have amounted to AU$80,000 if not for the early guilty pleas and lack of prior convictions relating to long service leave.

The decision follows another recent decision where an employer was ordered to pay penalties of AU$17,000 for failing to pay an employee his accrued annual leave entitlements on the termination of his employment, instead making the payment more than three months late.

Lessons for employers

To avoid non-compliance, employers should ensure they process their employees’ final pay on time, consider the source of the long service leave entitlement for each employee, keep adequate and proper records and undertake pay audits.

Pay on time

It is a misconception that employers can wait until their next pay run to process an employee’s final pay as not all entitlements can be lawfully paid and processed according to a fortnightly or monthly payroll. Employers should keep this in mind when processing an employee’s final pay.

Know the source of each employee’s long service leave entitlement

As long service leave legislation is not consistent across Australia, employers must consider how their obligations might differ depending on the state or territory in which their employees are based or where the direction to work comes from. Each applicable Act contains its own provisions about accrual, payment, and taking of long service leave, as well as how entitlements are treated when transferring from one employer to another. Enhanced long service leave entitlements might also be found in other industrial instruments, like an employment agreement or enterprise agreement.

Different rules may also apply for employees who spend time in multiple jurisdictions, nationally or internationally, depending on where the employee works or is based on termination of employment, or where the employer giving directions to work is located.

Keep adequate records

It is imperative that employers keep long service leave records. Even after an employee leaves, employers may be required to provide an employees’ long service leave record for the purposes of determining any leave entitlement non-compliance.

Undertake pay audits

Employers should have comprehensive processes and procedures in place to ensure they are paying employees their full legal entitlements at the correct time. If the board and senior management do not take proactive steps to ensure correct payment, this can be seen as showing intent to engage in ‘wage theft’. Therefore, organisations need to have adequate controls in place and regularly review them, to ensure employees are not underpaid.

Co-written by Stefania Silvestro and Rona Goldman of Pinsent Masons.