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Long Service Leave: Past, Present and Future

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Long Service Leave: Past, Present and Future 5 Long service leave: past, present and future SHAUNA FERRIS, DR NICK PARR, DR RAY MARKEY AND DR TIM KYNG ABSTRACT As a result of changes to the Australian industrial relations framework, long service leave benefits are under review. State and Commonwealth governments are working towards the Shauna Ferris development of a new national standard for long service leave (LSL). It is, therefore, timely to re-examine the purpose of LSL. How do people use their LSL benefits? What are the main benefits of LSL for employers, employees, and the community as a whole? This paper provides a historical overview of developments, as well as a summary of current trends, and discusses some proposals for improved vesting and portability of benefits. Dr Nick Parr Dr Ray Markey Dr Tim Kyng KEYWORDS Long Service Leave, employee entitlements, National Employment Standards AJAP 2015; 3: 5–22 6 AUSTRALIAN JOURNAL OF ACTUARIAL PRACTICE ❙ 2015 ❙ VOLUME 3 INTRODUCTION Who receives LSL benefits, and who misses out? Should LSL benefits be improved, and if so what improvements Should Australian workers have a guaranteed are desirable? entitlement to long service leave (LSL)? Is LSL an Section 1 of this paper summarises the historical obsolete benefit that is no longer necessary? Or should evolution of LSL, including the impact of recent LSL be retained, improved and extended to meet the changes to Australian industrial relations legislation. changing needs of Australian society? Section 2 describes how people use their LSL This issue has become more controversial over entitlements. the last decade, as a result of changes in the industrial Section 3 discusses some proposals for improving relations framework. LSL entitlements and administration. In the past, most Australian workers were eligible for LSL principally through Commonwealth, State and Territory legislation that set minimum LSL standards 1 HISTORICAL DEVELOPMENT OF for all workers in each jurisdiction. State and federal LONG SERVICE LEAVE awards, developed through the system of industrial conciliation and arbitration, also often provided The purpose of LSL has evolved over time to meet the LSL benefits that exceeded the statutory minimum needs of both employers and employees. To illustrate standards for specific occupations or industries. these changes, this section describes the development However, over the last 20 years there has been of the LSL entitlements for one particular group of a trend towards increasing the role of enterprise employees: Commonwealth public servants. bargaining in industrial relations, while reducing the Public servants were the first employees to receive role of awards. Minimum standards of employment long service leave entitlements. Over time, LSL benefits which were previously included in awards are now were gradually improved: more and more public specified in statutory safety nets. In 2009, the federal servants became eligible for benefits under a wider Labor government passed the Fair Work Act 2009. and wider range of circumstances. Certain states This Act created a new set of National Employment tended to take the lead in improving benefits. Benefit Standards (NES). It is intended that uniform national improvements then tended to “flow through”: that is, standards for LSL should eventually be included benefit improvements in one jurisdiction would be used in the National Employment Standards,but at the to justify improvements in other jurisdictions. time of writing these new LSL standards are still State and Commonwealth governments are major under development. The State and Commonwealth employers, so the concept of long service leave became governments have commenced negotiations in relation familiar to the workforce.1 Eventually, private sector to the new standards. However, progress has been slow. workers began to ask for similar benefits: that is, public In the meantime, transitional rules are in place, sector benefits eventually had flow-on effects to the which generally carry forward any LSL entitlements private sector. from pre-existing legislation, awards and enterprise agreements. 1.1 Historical development of LSL In recent years, some trade unionists and politicians for public servants have suggested that LSL benefits should evolve to cope Long service leave originated in colonial Australia with modern working conditions. In particular, there in the 1860s. At that time, many civil servants were have been suggestions that LSL benefits should be more “imported” from the United Kingdom. Long-serving portable, so that accrued benefits can be retained as civil servants were often given extended periods of workers move from one job to the next (Hannon 2008; paid leave in order to return to the United Kingdom to Scott 2008a; Scott 2008b; O’Rourke 2011; Westwood visit family and friends. Colonial governments passed 2012). In July 2014 Greens Party Senator Lee Rhiannon legislation to codify these entitlements.2 called for a Parliamentary inquiry into the creation of a Soon after Federation, these benefits were nationwide portable LSL scheme (Rhiannon 2014). incorporated into the legislation governing the terms Hence this seems to be an opportune time to review and conditions for Commonwealth Public Servants. LSL. Do we really need LSL? What is the purpose of Initially, under the Commonwealth Public Service LSL? What are the costs of providing LSL, and what are Act 1901, long service leave was only available to the benefits? How well is the current system working? Commonwealth public servants who had completed 1 State and Commonwealth governments currently employ roughly 14% of the workforce, i.e. about 1.7 million Australians. (Australian Bureau of Statistics (2013a) and (2013b)). 2 Selby (1983) provides a useful overview of the development of long service leave up to 1983. LONG SERVICE LEAVE: PAST, PRESENT AND FUTURE 7 20 years of service.3 However, over the next century, retrenched after completing eight years’ service but LSL was extended to cover a variety of different before completing 20 years’ service. The changes were situations, as described below. backdated to cover many of those who had previously been retrenched (Costa 1953; Willisee 1953). 1.1.1 LSL as a retirement benefit (1911) The first amendments to Commonwealth LSL benefits 1.1.4 LSL as a resignation benefit (1966) were passed in 1911. The Public Service Commissioner In 1966, the rules were amended to allow payment of a noted that many long-serving public servants deferred lump sum LSL benefit for any employee who left service taking LSL until retirement. Senior employees would for any reason other than misconduct, as long as the take leave for six months and then retire, without employee had completed the qualifying period (which ever returning to work. Clearly, in practice, for many at that time was 15 years’ service). employees, LSL benefits simply provided an additional This was a practical approach to simplifying LSL form of retirement savings. administration. Suppose an employee had completed To simplify personnel administration, the the qualifying period and hence was entitled to take rules were changed to allow a lump sum payment leave. If this person wanted to resign, he could simply at retirement in lieu of LSL (only for those who had go on leave and then resign at the end of the period of completed at least 20 years of service). leave, without ever returning to work. This caused a delay in hiring a replacement. It was simpler to change 1.1.2 LSL as a death and/or disability benefit the rules to enable payment of a lump sum in lieu to (1911/1922) any employee who resigned after completion of the The 1911 amendments also allowed for cash payments qualifying period. of unused LSL benefits to the dependants of any public servant who died in service after completing 20 years 1.1.5 Reduction in qualifying and vesting periods of service. This made the system more equitable: it (1953 and 1973) ensured, for example, that the widow of an employee In 1953, the qualifying period for LSL was reduced to who died the day before retirement would be eligible for 15 years (providing four and a half months of leave after the same benefits as the widow of an employee who died 15 years’ service). the day after retirement. In 1973, the qualifying period was reduced again, to In 1922, the Act was amended to provide pro-rata 10 years (providing three months leave after 10 years). benefits for those who left service after completing at In 1976, the legislation was changed to allow least four years of service, if service was terminated pro-rata benefits after just one year of service, for exits due to death, ill-health retirement, or retirement after due to death, disability, retrenchment or age-based attaining age 60.4 retirement (but not for voluntary resignation before the completion of 10 years’ service). 1.1.3 LSL as a retrenchment and/or redundancy benefit (1953) 1.1.6 Extension of benefits to part-time employees In the early 1950s, the Commonwealth government (1976) decided to privatise certain government services; In 1976, the Commonwealth Parliament passed this led to the retrenchment of about 10,000 public legislation to provide LSL benefits for part-time servants. Initially, those who had not completed 20 employees (previously LSL benefits were only available years of service were not eligible for any LSL payments. to full time employees). However, there was considerable public sympathy In summary, over time, the government had for those who had been retrenched. Politicians on extended LSL benefits to more and more public both sides of Parliament acknowledged that most of servants; and LSL benefits had become available under the retrenched workers were efficient, hard-working, a wider range of circumstances (including retirement, faithful employees who had been retrenched through death, disability, retrenchment, and resignation). no fault of their own, as a result of changes to government policy. 1.2 LSL for private sector employees In 1953, the Commonwealth legislation was Prior to 1951, there was no legislation that required changed to provide pro-rata benefits to any full- employers to provide LSL to private sector workers.
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