Long service leave (LSL) is one of the most misunderstood payroll entitlements. Its calculation spans awards and enterprise agreements, the National Employment Standards, and state based legislation, creating complexity that exposes even well governed organisations to risk.
This two part blog series unpacks that complexity and clarifies what accurate LSL compliance really requires.
The first instalment challenges common assumptions. It examines what qualifies as long service leave, how hours and work patterns influence entitlements, and why payroll systems alone rarely provide sufficient assurance.
For employees with consistent permanent hours, LSL accruals can appear comparable to annual or personal leave. The risk increases when hours fluctuate, shift patterns change, or employment types vary across an employee’s tenure. These are the conditions where errors tend to accumulate unnoticed and where LSL compliance most often breaks down.
Employees taking LSL
The milestones that determine when an employee can access long service leave vary by state, with eligibility typically arising after seven or ten years of service. That initial threshold is only part of the picture. Additional rules govern whether LSL continues to accrue, whether further service milestones unlock additional entitlements, and how leave is treated over time.
Termination events add another layer of complexity. Resignation or redundancy can materially change what is owed, often triggering different calculation methods and payment outcomes. These variations make LSL entitlements highly sensitive to timing, tenure, and jurisdiction, and difficult to manage without clear rules and ongoing oversight.
Payroll: Hours vs. value
LSL accrues in weeks rather than hours, giving the entitlement a value rather than a simple time balance. Most payroll systems are not designed to manage this natively. Instead, they estimate an equivalent number of hours so a balance can appear in payroll and accounting systems and employees can see an indicative entitlement.
The actual value of LSL is calculated using average earnings over defined periods and draws on multiple components of an employee’s pay. These calculations vary by jurisdiction, often depending on the state in which the employee is employed at the time the entitlement is accessed. The result is a complex valuation process that sits well beyond a standard accrual calculation and is rarely as straightforward as payroll balances suggest.
Problems with payroll systems
Payroll and accounting systems are required to hold a value for long service leave entitlements, yet the accuracy of those values varies widely across systems. Compounding the challenge, an employee’s LSL value can shift significantly over the course of their employment as hours, earnings, roles, or employment arrangements change.
True compliance depends on calculations that remain dynamic and responsive to these changes, while businesses still need stable, reliable balances for financial reporting. Balancing these two demands exposes a gap between what systems record and what compliance actually requires.
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For employers that have not yet assessed LSL compliance, the urgency is increasing. Whether through automated compliance tools such as Yellow Canary or by critically reviewing how well internal teams are equipped to manage LSL risk, organisations that act now place themselves in a far stronger position for the future.
Check out part 2 of the complexities of Long Service Leave to understand the complex relationship between LSL and employment agreements, and differences between state-based LSL legislations.
*Yellow Canary content on this website is intended solely for the purpose of offering commentary and general knowledge. The content is not intended to constitute legal advice. You should seek legal or other professional advice before acting or relying on any of the content.
