When making a payment of unused long service leave on termination of employment you need to calculate certain payment components that have different withholding requirements. These components are:
- pre-16 August 1978
- pre-18 August 1993 (that is, for the period 16 August 1978 to 17 August 1993)
- post-17 August 1993.
To calculate the amount to withhold, follow the three-step process:
- Step 1 – work out the amount of long service leave accrued in each period
- Step 2 – work out the payment amount attributable to each period
- Step 3 – calculate the amounts to be withheld.
Step 1 – Work out the amount of long service leave accrued in each period
Use the following formula to work out the amount of long service leave accrued in each period:
Days of long service leave accrued during long service leave employment period
×
Days in relevant period ÷ Days in long service leave employment period
The relevant period can mean the:
- pre-16 August 1978 period
- pre-18 August 1993 period (that is, for the period 16 August 1978 to 17 August 1993)
- post-17 August 1993 period (as applicable).
You may need to know how to treat:
- fractions of days
- an employee who has used long service leave
- long service leave taken at less than full pay.
Fractions of days
The calculation at step 1 can result in fractions of days being applicable to the relevant period. If the employee:
- has not accrued any long service leave in the pre-16 August 1978 period, but has accrued long service leave during the pre-18 August 1993 and the post-17 August 1993 periods, treat the fraction as having accrued during the pre-18 August 1993 period
- has accrued long service leave in all three periods, treat the fraction as having accrued during the pre-16 August 1978 period.
When an employee has used long service leave
If an employee has used long service leave while employed, you need to reduce the number of days of long service leave in a particular period by the number of days used in that period.
There may be occasions when the number of days of long service used in a particular period exceeds the number of days that were accrued in the same period. If this is the case, the following table provides instructions on how to apply these excess days.
If there are excess days in the period: |
Apply the excess days as follows: |
If, after applying the excess days as in column 2 any excess days remain, apply the remaining days as follows: |
---|---|---|
Pre-18 August 1993 |
Subtract the excess days from the unused days in the post-17 August 1993 period |
Subtract the excess days from the unused days in the pre-16 August 1978 period |
Post-17 August 1993 |
Subtract the excess days from the unused days in the pre-18 August 1993 period |
Subtract the excess days from the unused days in the pre-16 August 1978 period |
The number of days that are remaining after applying this table is the unused long service leave days applicable for each period.
Example 5
John retires on 30 June 2015 with long service leave due of 224 days after 44 years (16,071 days) service. Service for the pre-18 August 1993 period (that is, from 16 August 1978 to 17 August 1993) is 5,481 days, and service after 17 August 1993 is 7,988 days. John has not taken any long service leave before retiring.
Pre-18 August 1993 period
Days of long service leave accrued during long service leave employment period
×
Days in pre-18 August 1993 period ÷ Days in long service leave employment period
= 224 × (5,481÷16,071)
= 76.39 days (rounded to two decimal places)
= 76 days (fraction of 0.39 days applied to pre-16 August 1978 period)
Post-17 August 1993 period
Days of long service leave accrued during long service leave employment period
×
Days in post-17 August 1993 period ÷ Days in long service leave employment period
= 224 × (7,988÷16,071)
= 111.34 days (rounded to two decimal places)
= 111 days (fraction of 0.34 days applied to pre-16 August 1978 period)
Pre-16 August 1978 period
Days of long service leave accrued during long service leave employment period
×
(Days in pre-16 August 1978 period ÷ Days in long service leave employment period)
= 224 × (2,602÷16,071)
= 36 days (rounded to two decimal places)
= 36 days + 0.39 + 0.34 (adding back the fractions of days)
= 37 days (rounded)
End of exampleLong service leave taken at less than full pay
If an employee has taken long service leave at less than full pay, the number of days of long service that are used is calculated as follows:
Actual days of long service leave
×
Rate of pay at which leave was actually taken ÷ Rate of pay to which the employee was entitled to when taking leave
Example 6
Nav took 100 actual days of long service leave at a rate of $30 per hour, when she is normally entitled to $40 per hour.
100 actual days of long service leave × (30÷40)
= 75 days of long service leave days used.
Nav is taken to have used 75 days of long service leave.
End of exampleStep 2 – Work out the payment amount attributable to each period
Use the following formula to work out the payment amount attributable to each period:
Amount of the payment
×
Unused long service leave days in the relevant period ÷ Total unused long service leave days
Where:
- unused long service leave days in the relevant period means the number of unused days of long service leave in the pre-18 August 1993 period, the post-17 August 1993 period, or the pre-16 August 1978 period (as applicable)
- total unused long service leave days means the total number of unused days of long service leave in the in the long service leave employment period for the payment.
Part-time and full-time service periods
Situations may arise where a part-time employee has moved onto full-time service during their employment with you. When making a payment of unused long service leave on termination of employment, you will need to separate the employee's full-time and part-time service periods. The long service leave entitlement for each period is then calculated separately.
Step 3 – Calculate the amounts to be withheld
How you work out the amount to withhold depends on whether your employee is leaving because of genuine redundancy, invalidity or through an early retirement scheme, or for another reason.
Leaving employment because of genuine redundancy, invalidity or an early retirement scheme
Once the component values have been calculated (see step 2), specific withholding rates are applied to each, as shown in the following table.
Component |
Withholding rate |
---|---|
Pre-16 August 1978 |
5% of total at marginal rate, disregarding any cents |
Post-15 August 1978 |
32%, disregarding any cents |
Leaving employment for other reason
Once the component values have been calculated (see step 2), specific withholding rates are applied to each, as shown in the following table.
Component |
Withholding rate |
---|---|
Pre-16 August 1978 |
5% of total at marginal rate, disregarding any cents |
Pre-18 August 1993 (for example 16 August 1978 to 17 August 1993) |
32%, disregarding any cents |
Post-17 August 1993 |
If this unused long service leave component (and unused annual leave) is less than $300, withhold 32% of the total amount, disregarding any cents. If this unused long service leave component (and unused annual leave) is $300 or more use the following steps for the marginal rates calculation:
|