ACT long service leave payouts, what employers must pay and when

If you employ staff in the ACT, long service leave is not something you can deal with when it suits you. The Long Service Leave Act 1976 (ACT) (legislation register) gives every employee who completes seven years of continuous service with you an entitlement to paid long service leave, and that entitlement does not disappear when the employment ends. When a worker leaves, whatever long service leave they have accrued becomes a cash payment you owe, with a hard deadline attached.

The obligation applies to small and large employers alike, and the two details that cause the most trouble are the seven-year threshold and the 90-day payment window. Miss either and you face a penalty-unit fine as well as a recovery claim from the employee. This guide sets out who the Act covers, when a payout is triggered, how the amount is calculated, what records you must keep, and what happens if you get it wrong.

Who the Act covers and when the clock starts

Long service leave sits outside the National Employment Standards under the Fair Work Act 2009 (Cth), so in the ACT the source of the entitlement is the territory Act. It applies to employers and employees in the ACT across most industries, regardless of business size. The Act's definition of employee expressly includes part-time employees, casual employees and people paid at piecework rates. A casual counts as an employee when they are offered regular and systematic work on a continuing basis, even though there is no guarantee of ongoing hours.

Three thresholds decide whether you owe anything:

• Seven years of service: an employee who completes seven years of continuous service with a single employer is entitled to long service leave for that period and keeps accruing for each further year (s 3 of the Act). Accrual runs at one-fifth of a month of leave for each year of service (s 4 of the Act).
• Five to seven years of service: an employee in this band can be entitled to a pro-rata payment, but only if the employment ends for a reason the Act recognises (s 11C of the Act).
• Under five years: no long service leave entitlement arises under the Act.

A few situations sit outside or alongside the Act. Enterprise agreements made after 1 January 2010 can include their own long service leave terms. If a federal pre-modern award covered your employees before 1 January 2010, the award's long service leave clause may displace the Act entirely. And if you operate in an industry with a portable scheme, different rules apply: in the ACT, the ACT Leave scheme covers building and construction, contract cleaning, community services and security workers, and the scheme has its own accrual and payout rules (Fair Work Ombudsman).

Duty one: count continuous service correctly

Every calculation starts with the employee's period of service, which means continuous service with a particular employer. Service does not need to be uninterrupted in a strict sense. The Act lists interruptions that do not break continuity, including an absence with the employer's leave, absence because of a work injury, a stand-down for slackness of trade followed by re-employment within six months, and a return to work within two months of any other interruption (s 2G of the Act). Annual leave and long service leave count as continuous service, as does up to two weeks of sick leave in any year. Unpaid leave beyond those allowances can still count if you approved it, so the way you record and authorise absences determines what an employee can claim later.

Continuity also survives a sale of the business. If a business is transferred from one employer to another and an employee moves across with it, the Act deems the service uninterrupted and the new employer inherits the earlier service (s 10 of the Act). The same principle applies in some contracting and outsourcing arrangements (s 10A of the Act). If you are buying or selling a business with staff, the seller's long service leave liability becomes the buyer's problem unless the sale contract allocates it, so it needs to be priced into the deal and documented in the agreement.

Practical steps for this duty:

• Record each employee's start date, employment status and every change of status.
• Note periods of unpaid leave and any approval given for them.
• When you take on staff through a business purchase, carry the seller's service records across and date the continuity.

Duty two: recognise when a payout is triggered

Once an employee has a long service leave credit, that credit converts into cash when employment ceases for any reason. The credit is the leave accrued minus any leave already granted. On cessation, the Act requires you to pay the employee the ordinary remuneration for that period (s 11A of the Act), and if the employee has died, the payment goes to their legal personal representative.

That covers resignations, retirements, redundancies, dismissals and expiries of fixed-term contracts. An employee who resigns after seven years is entitled to their full accrued payout, as is an employee made redundant at the eight-year mark.

Before seven years, a payout depends on why the employment ended. An employee with between five and seven years of service gets a pro-rata payment only where the termination is one of the following (s 11C of the Act):

• resignation because of illness, incapacity, or a domestic or other pressing necessity that justifies leaving;
• resignation on or after the minimum retiring age, which is 65 unless an award or agreement fixes a different age;
• death; or
• termination by you for any reason other than the employee's serious and wilful misconduct.

The last limb is broader than many employers assume. Dismissal for poor performance, a genuine redundancy or a restructuring all qualify, because none of those is serious and wilful misconduct. A pro-rata entitlement will often be payable in a redundancy at the six-year mark, and denying it on the assumption that under seven years means nothing exposes you to a claim.

Conversely, an employee in the five-to-seven-year band who simply resigns to take another job has no entitlement under s 11C, and an employee dismissed for serious and wilful misconduct in that band has none either. The reason for termination is therefore not just an administrative detail; it is the fact that decides whether a payout is owed, so it should be documented at the time.

Duty three: calculate the payout at ordinary remuneration

The payout is the employee's long service leave credit expressed in weeks or months of leave, paid at their ordinary remuneration. For a full-time employee on a steady wage that is straightforward: the accrued leave multiplied by the weekly rate.

The Act builds in averaging rules for employees whose hours or pay vary (s 7 of the Act):

• Part-time and casual employees: multiply the average hours worked each week over the 12 months before the entitlement day by the ordinary remuneration rate on that day.
• A move from full-time to part-time or casual work: if that change happened within two years before the entitlement, divide the total wages paid over the previous five years by five to find the weekly rate.
• On cessation: the rate is the ordinary remuneration payable immediately before employment ended, and for part-time and casual employees the weekly hours are averaged over the 12 months before cessation (s 11D of the Act).

A worked example shows how the averaging rules combine. A casual employee who has averaged 20 hours a week over the last year at $30 an hour has ordinary remuneration of $600 a week. With eight years of service, the credit is eight-fifths of a month, roughly 6.9 weeks of leave, so the payout is about $4,150. A full-time employee earning $1,500 a week with ten years of service accrues two months of leave, roughly 8.7 weeks, worth about $13,000 before any leave already taken is deducted.

The payout forms part of the employee's termination payments, so it needs to be processed alongside the other components of final pay such as untaken annual leave, notice and any redundancy payment, each with its own tax treatment.

Duty four: pay within 90 days

The Act sets a deadline most payroll systems do not. Where employment ceases and a long service leave credit exists, the amount must be paid within 90 days after the day the employment ends (s 11A(4) of the Act). Failing to pay on time is a strict liability offence carrying a maximum penalty of 50 penalty units, so a late payout can attract a fine even if you fix it afterwards. A penalty unit is a fixed dollar amount used across ACT legislation, so check the current dollar value before quoting a fine.

For leave actually taken rather than paid out, the Act also regulates how payment is made: in advance for the whole period of leave, or at the same times you would have paid the employee had they been working, unless you and the employee agree otherwise (s 8 of the Act). Paying long service leave in the wrong manner is a separate strict liability offence with the same 50-penalty-unit ceiling.

Duty five: keep the records the Act prescribes

The Act contains its own record-keeping regime (s 12 of the Act), separate from the general Fair Work record-keeping rules. For each employee you must keep records of:

• name, occupation and classification;
• whether the employee is full-time, part-time or casual;
• ordinary remuneration, including the base rate of pay and any loading, and the purpose of the loading;
• the number of hours worked each week;
• the date the employee started;
• annual leave taken;
• the employee's long service leave entitlement, and leave granted or paid out;
• the date employment ended and the reason;
• the employee's date of birth; and
• overtime hours and the name of each award or agreement under which entitlements arise.

Records must be kept for seven years after the employee's service ends, or for seven years after all amounts owing are paid to the estate where an employee dies. Not keeping these records is an offence with a maximum penalty of 20 penalty units, and the Act gives authorised officers the power to inspect them.

What happens if you get it wrong

The Act's offences are strict liability, which means intention does not need to be proven. A failure to pay a payout within 90 days, or to pay for leave taken in the manner the Act requires, carries a maximum penalty of 50 penalty units. Record-keeping failures carry a maximum penalty of 20 penalty units.

Beyond the fines, an employee who is owed long service leave can take action to recover the amount, and a dispute about a payout can end up before a tribunal or court. The right forum depends on the employer's status under federal workplace laws, so it is worth confirming before a claim is filed. The agency that administers the Act in the ACT is WorkSafe ACT, and it is also the point of contact the Fair Work Ombudsman points employers to for long service leave questions in the territory (Fair Work Ombudsman).

A compliance checklist

Run through these steps for each employee group:

• Confirm whether the Act or a portable scheme applies to each group of employees.
• Track continuous service from day one, including approved unpaid leave and business transfers.
• Flag employees as they approach the five-year and seven-year marks.
• When employment ends, calculate the credit at ordinary remuneration using the 12-month averaging rules for part-time and casual staff.
• Pay any payout within 90 days of cessation and keep evidence of the payment.
• Keep the s 12 records for seven years after service ends.
• On a business sale, verify that service records transfer and price the long service leave liability into the contract.

When to bring in a lawyer

Most payouts are arithmetic, but the situations that need legal help are the ones where the Act's categories do the work. A dismissal in the five-to-seven-year band is the clearest example: the reason for termination decides whether a pro-rata payment is owed, and an employer who denies it on a wrong characterisation of the conduct faces a recovery claim. A business transfer where service records are missing or contested, an award or enterprise agreement that changes the calculation, and a dispute about whether a break in service broke continuity are the other common cases.

A lawyer can review the termination reason and the records before you make a decision, confirm which forum applies if an employee disputes the figure, and draft the termination or settlement documents so the basis of the payout is recorded. That last point matters more than it looks: the records and the termination letter are the evidence that decides a later dispute.

The 90-day clock starts the day employment ends

The detail employers miss is that the deadline is fixed by the Act, not by the payroll cycle. The 90 days run from the day employment ceases, so a payout processed on the next payday is fine, but one that waits for a monthly finance run or a quieter week can tip past the window and become a strict liability offence. The fix is a standing process: when any employee's employment ends, pull their service record, calculate the credit against s 7, and schedule the payment inside 90 days.

If you do one thing this week, identify every current employee who has passed the five-year mark. Those are the files where the pro-rata rules and the 90-day clock will bite, and they are the ones where a missing record or a misunderstood termination reason turns into a claim.