"Long Service Leave - Timing is Critical"

by Glen Seidel

Article in "Independent Teacher" April 2003

During 2002 numerous members in Catholic schools asked for ANGEE [now IEU(SA)] assistance in checking their Long Service Leave entitlements. This is a fairly straight-forward exercise, as all non government education employees in SA (Catholic AND Independent) are covered by the Long Service Leave Act (1987).

Enterprise Agreements tend to only address long service leave provisions by allowing for the taking of leave in the eighth year, after pro-rata entitlements have been established. This allows for the more convenient time frame of 10 weeks leave which coincides with the length of a term rather than 13 weeks after 10 years.

What emerged, however, was that for many years the whole Catholic sector had been calculating employee long service leave by a method which differed from that legally specified. I hasten to record that there was no indication of any deliberate intention on the part of the employers to disadvantage any employees, but there were some people who had been disadvantaged by the “Catholic” method – and they understandably wanted the situation corrected.

The difference between the two methods only impacts on people who have changed their time fraction over the course of their employment. Employees who have remained at the same FTE fraction will have equivalent outcomes under either model.

The Long Service Leave Act in essence sets

• 13 weeks paid leave after 10 years service.
• The rate of pay corresponds to that attached to the average time fraction over the previous 3 years.
• Leave accrues and is taken in “7 day weeks” rather than just counting “work days”.

The system adopted by the Catholic sector was to, in effect, average the time fraction over the whole employment history of the employee. People who had reduced their time fraction in the last 3 years would end up worse off under the Act, but people who had increased their average fraction in the last 3 years would be better off under the Act.

ANGEE was asked to support an application by the employers for an exemption from the Act. If ANGEE wouldn’t support the application the employers agreed to restructure their various long service leave funds to comply with the current legal position.

During negotiations with Catholic Education SA (CESA), data was provided which allowed a close examination of all people affected over the last six years. Six years was chosen as that is the time period in which underpayment of wages claims may be made.

It was claimed that to adopt the “legal’ method would disadvantage part time female employees, but a closer examination of the data highlighted a more complex situation.

It emerged that over the six years

• There was little cost difference between the two methods. The Act would have cost the employer less than $4,000 per annum extra. ($22,754 over 6 years)
• More employees would have received a higher payout under the provisions of the Act (370 compared with 230), but by a smaller average amount ($1,915 compared with $1,221)
• More females were better off under the Act (339 compared with 207)
• More ESOs were better off under the Act (125 compared with 46)
• Male teachers were worse off under the Act (27 compared with 18)
• Female teachers are better off under the Act (218 compared with 166)
• Females in general are better off under the Act (339 compared with 207)
• Males in general are better off under the Act (31 compared with 23)

In what is essentially a zero sum gain for the employers, ANGEE’s analysis of the data shows that more employees are better off under the Act, but by a smaller amount than under the CESA method. Based on this analysis, ANGEE declined to support an employer application for an exemption under the Act.

In the interim CESA agreed

• “That all applications currently lodged would be processed according to the most favourable method.”
• The February 2003 SACCS meeting would consider a recommendation to change the method of calculation for future applications to that which is consistent with the Act.
• SACCS would provide payments to those employees who had been disadvantaged by the CESA method over the six years preceding notification of the dispute by ANGEE (24 June 2002) and records of others would be adjusted accordingly.
• No repayments would be required from employees who had been advantaged by the CESA method.

It is ANGEE’s contention that the Act doesn’t necessarily disadvantage women on maternity leave or those returning part-time. The Act is actually more forgiving of a temporary reduction of time for family or any other reason. Once an employee has returned to their substantive fraction for 3 years, that reduction in time disappears from the calculation (reminiscent of driving licence demerit points).

If people on maternity leave or any other type of unpaid leave wish to access long service leave, then the break will not affect the calculation and payments will be at the prior 3 year average FTE rate. However to take leave later in a temporary part time period will cause disadvantage. ESOs seem to be advantaged by the Act because in general they are increasing FTE fraction as their workload increases with school busyness.

The people who are more likely to be disadvantaged are those with significant amounts of accrued leave and wish to reduce their time ahead of retirement. The advice to those employees is to take your long service leave BEFORE reducing your FTE fraction if you want to maximise the rate at which it is paid.

If you do not do that you could find that the service you put in over 30 or 40 years will be rewarded with a reduced payout of unused long service leave when you eventually retire. Leave accrued after returning from leave will of course accrue at the current reduced fraction, but it won’t affect previously accrued, but spent, leave.

As this is general industrial advice and not financial advice it is recommended that independent financial planning and taxation advice be sought

The general industrial advice to all employees, Catholic or Independent who wish to maximise their long service leave pay rate, is, if possible,

• Make sure you do not have a reduced time fraction in the 3 years before taking leave or getting paid out leave.

• Take your leave before reducing time or wait 3 years after returning to your substantive rate before taking leave.

• Independent financial advice should be sought for retirement and taxation planning implications of such a strategy.