Understanding Long Service Leave in Australia: Entitlements, Tax and Portable Schemes

Long service leave (LSL) is a paid leave entitlement for employees who have worked for a single employer - or in certain industries - for an extended period. It recognises long and loyal service and is enshrined in state and territory legislation.

• State legislation: Long service leave is governed by state and territory law - not the federal Fair Work Act. Each state has its own Long Service Leave Act with different thresholds, accrual rates, and access rules. The National Employment Standards set a minimum but most state laws exceed this minimum
• Who is entitled: Generally all employees (full-time, part-time, casual in some states) who have completed the qualifying period with a single employer. The qualifying period varies: NSW 10 years; VIC 7 years; QLD 10 years; WA 10 years; SA 10 years; TAS 10 years; ACT 7 years; NT 10 years
• Accrual rate: Typically 1/60th of a week per week of service (equivalent to approximately 0.87 weeks per year, or 8.67 weeks per 10 years). In VIC, the accrual is 1/60th per week for the first 7 years (4.87 weeks) then continuing
• Part-time employees: LSL accrues on the same basis as full-time employment but the leave is taken at the reduced hours. A part-time employee at 0.6 FTE accrues the same proportion of full-time LSL
• Casual employees: Entitlement varies by state. In NSW, regular and systematic casual employees qualify. In VIC, casuals employed on a regular and systematic basis for 7+ years qualify. In QLD, casuals are generally excluded. Check your state's specific rules
• Employees on parental leave: Periods of paid parental leave generally count toward LSL service. Unpaid parental leave treatment varies by state - typically doesn't break continuity but may not count toward the qualifying period

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Access to LSL depends on whether you have reached the full qualifying period, and - in some states - whether partial access is available before the full period.

• Full access at qualifying period: Once the qualifying period is reached (7-10 years depending on state), you have an entitlement to take LSL or have it paid out on termination. The employer cannot refuse LSL to an eligible employee - though they may negotiate timing
• Partial access in some states: Several states allow pro-rata LSL access before the full qualifying period in specific circumstances:
• NSW: Pro-rata LSL payable on death, incapacity, or where the employer terminates employment after 5 years. Resignation after 10+ years = full entitlement
• VIC: Pro-rata LSL payable after 7 years - the full qualifying period. Additionally, from 1 November 2018, employees with 7+ years can access LSL at any time by agreement
• QLD: Pro-rata payable on termination after 7 years; full entitlement at 10 years
• WA: Employees with 7+ years who resign or are made redundant receive pro-rata LSL. Full entitlement at 10 years
• Resignation before qualifying period: Resigning before reaching the qualifying period generally forfeits LSL in most states (except where pro-rata access applies). This is a significant financial consideration - particularly for employees at 8-9 years of service
• Taking leave vs cashing out: Some states allow LSL to be cashed out (paid in lieu of leave taken) by agreement. In others, cashing out is restricted and the employee must actually take the leave. Check your state's rules before planning around a cash payment

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LSL payments receive concessional tax treatment - the tax applied depends on when the leave was accrued and how it is paid. Understanding this prevents significant unexpected tax.

• Current entitlement (paid in lump sum on termination): LSL accrued from 16 August 1978 onwards - paid on termination - is taxed as an Employment Termination Payment (ETP) for the portion accrued before a certain date, and as ordinary income for the remainder. The tax treatment is complex - employers apply PAYG withholding according to ATO marginal rate schedules
• LSL taken as leave (while employed): Paid at ordinary time while on leave - taxed as normal salary income at marginal rate. Withholding is based on the annualised rate of the lump sum or spread over the leave period - employer methodology varies
• Pre-1978 accrual (concessional): Any LSL accrued before 16 August 1978 receives a 5% inclusion rate - only 5% of that component is included in assessable income. Most employees today have no pre-1978 component
• Spreading the payment: Where LSL is taken as leave (not cashed out), some employers spread withholding over the leave period - treating it as salary for each pay period. This results in lower effective withholding. Taking LSL as actual leave rather than a lump sum can reduce the average tax rate applied
• ETP cap and tax offset: Genuine redundancy payments and some termination payments benefit from tax-free thresholds and concessional rates. LSL paid purely as lump sum on termination (not redundancy) is generally taxed at marginal rates without special concessions
• Get a payroll breakdown: Ask your payroll department to provide the tax calculation before termination - understanding which tax rates apply to which portions allows you to plan (e.g., whether to resign in June vs July based on income in each year)

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Several Australian industries operate portable LSL schemes - where entitlements follow the worker across employers in the same industry, rather than being lost when changing employers. These schemes benefit workers in industries with high employer turnover.

• Building and construction: CoINVEST (Victoria), QLeave (Queensland), Long Service Corporation (NSW), CoINVEST equivalent schemes in SA, WA, TAS. Workers accumulate LSL entitlements with the scheme - not tied to a specific employer. A Victorian construction worker who changes builders retains and continues accumulating LSL via CoINVEST
• How portable schemes work: Employers make regular contributions to the scheme based on their workforce. Workers register with the scheme. When changing employers (within the industry), the worker's accrued entitlement transfers to the new employment period. After the qualifying period (typically 7-10 years of industry service), LSL can be accessed
• Community services (VIC): The Community Services Industry Portable Long Service Leave scheme covers community services workers in Victoria - including aged care, disability, child care, and family services. Workers move between NFP employers without losing LSL
• Security industry: Several states have portable LSL for security officers - GuardianLife (VIC), similar schemes in other states
• Check registration: Workers in industries with portable schemes must register with the relevant authority. Employers in those industries must also register and make contributions. Failure to register can forfeit entitlements
• Interstate workers: Portable scheme coverage is generally state-based. Workers who move interstate may not have their previous state's portable entitlements recognised in the new state - though some schemes have interstate reciprocity arrangements

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Long service leave is a valuable financial asset - particularly for employees approaching the qualifying threshold. Strategic planning maximises the value received.

• Do not resign just before qualifying: Resigning at 9 years and 11 months in a state requiring 10 years forfeits the entire LSL entitlement (unless pro-rata provisions apply). The cost of leaving early can be $15,000-$30,000 or more in foregone entitlement. Calculate your exact qualifying date before making career decisions
• Use LSL for income-splitting across years: If your current year income is unusually high (bonus, redundancy, investment gain), taking LSL in a lower-income year reduces the marginal rate applied. In some states, LSL can be scheduled at a mutually agreed time - plan for a lower-income year if possible
• Double pay strategy: Some employers allow employees to take LSL at half pay over double the period. Taking 12 weeks at half pay rather than 6 weeks at full pay spreads income - potentially reducing average tax. Check whether your state permits half-pay arrangements and your employer agrees
• LSL as a pre-retirement transition: Using LSL at the end of a career - taking 6-12 weeks paid leave while transitioning to retirement - allows a gradual income reduction and the opportunity to access super (from preservation age 60) simultaneously
• Record keeping: Maintain your own records of LSL service - start date, any interruptions, and calculations. Large employers' payroll systems are generally accurate but mistakes occur. In portable scheme industries, confirm your registration and accrual balance with the scheme annually
• Change of employer within a portable scheme: Always notify the portable scheme when changing employers. The window for transfer can be time-limited - late registration may forfeit accrued entitlements

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