ANSWER ID:9160

Long service leave is a period of paid leave for employees who have been working for the same business for a long period of time.

Setting this up in your software is a simple matter of creating two related payroll categories:

• A Wage category which is used to pay an employee when leave is taken and which reduces the balance of accumulated hours. This wage category may already exist in your software.
• An Entitlement category which calculates the number of hours an employee accumulates from pay period to pay period.

Note: You can also set up long service leave using the "running down" method as is sometimes used for sick leave. For more information see our support note 'Running down' method of sick leave in Payroll

The example used in this support note is based on the following payroll information. Note that this is an EXAMPLE ONLY. Please check your long service leave obligations with your accountant or relevant wage authority.

• A full time employee who works a 37.5 hour week and is paid weekly.
• 8 weeks of long service leave accrued after 10 years of continual employment.

Let's show you how to set up long service leave:

Also see how our Payroll management training course can help you learn how to set up your payroll and process your employee pay runs.

How do I setup the wage category?

Note: This wage category may already exist in your software.

1. Go to the Payroll command centre and click Payroll Categories.
2. Click the Wages tab.
3. Check if the Long Service Leave category already exists. If it doesn't, proceed to step 4. If it does, proceed to How do I set up the entitlement below.
4. Click New.
5. Enter an appropriate name for the category, for example Long Service Leave or similar.
6. Select Hourly as the Type of Wages.
7. Select Regular Rate Multiplied by 1.0000 in the Pay Rate section. See our example below.
   
   Note: You can click Employee now and select the employees who are entitled to long service leave, but this will make the wage category display on paycheques when you process pays. Instead, it is recommended to go back into this wage category and click Employee to select an employee when they are due to be paid for long service leave. Alternatively, you can assign this wage category to the employee through their card under the Wages heading of the Payroll Details tab in the employee's card.
8. Click OK to return to the Payroll Categories list.

How do I setup the entitlement?

1. Go to the Payroll command centre and click Payroll Categories.
2. Click the Entitlements tab then click New.
3. Enter an appropriate name for the category, for example Long Service Leave Accrual.
4. Choose the Calculation Basis, in other words choose for the entitlement to accrue on a pro-rata basis or a fixed amount as follows: Pro-rata:

   Choose the Equals X% Percent of X option if your employees are paid on an hourly basis and you want the accrual to be a pro-rata calculation. Generally, Gross Hours should be selected in the Percent of field. If required you can exempt categories such as Overtime from the calculation of the accrual. To do this click the Exempt button, select the categories you want to exclude from the calculation, then click OK.

   For information on calculating what the percentage figure should be, please refer to our support note Calculating payroll accrual percentages. Fixed Amount: Choose the Equals XX Hours per Pay Period/Month/Year option if your employees are paid on salary basis. Because hours worked are not recorded on paycheques for salaried employees, a percentage of hours cannot be calculated. This method will accrue the number of hours you specify regardless of how many hours the employee works. You can specify hours per pay period, month or year. If you specify month or year, the software will divide and calculate the amount that accrues on an individual paycheque based upon an employee's pay frequency.

   Note: The formula to calculate the amount that should accrue each weekly pay period is: Hours of long service leave divided by the number of pay periods over which its accrued. So based on our example described above, this would be calculated as follows:

   a) Convert 8 weeks long service leave to hours: 8 x 37.5=300 long service leave hours.

   b) Number of pay periods over 10 years: 10 x 52=520 pay period weeks.

   c) 300 long service leave hours/520 pay periods=0.5769 long service leave hours accrued per weekly Pay Period.

5. If you want the accrual to be printed on employee pay advices, select the Print on Pay Advice option.
6. Select the Payroll Year End option Carry Entitlement Over to Next Year.
7. In the Linked Wages Category field, select the wage category created earlier in this support note. See our example below.
8. Click Employee and select the employees who accrue this entitlement.
9. Click OK to the Linked Employees window and the Entitlements Information window.

Frequently asked questions

I have just setup the accrual for the first time but some employees have already accrued some hours. How do I update the employee's leave balance?

See our support note Adjusting leave accruals.

What if I have employees that accrue at different rates or if I have a combination of hourly and salaried employees?

You can accommodate different accrual rates and methods by creating multiple entitlement categories and linking them to the appropriate employees.

Note: If you have one employee linked to more than one entitlement category for the same leave type, you should make sure that these entitlements are linked to separate wage categories. Otherwise, both entitlements will reduce in balance when holiday leave is paid.

Example: Let's say there are different entitlements such as 'Annual Leave 1^st Year of Service' and 'Annual Leave 2^nd Year of Service' and these are both linked to the wage category 'Holiday Pay'. If an employee was linked to both entitlements and was paid holiday pay, then the employee balance of hours on both of the entitlements would both be reduced by the number of hours of holiday pay.

I have an employee who was previously hourly and is now salaried or vice-versa. Can I transfer the balance of leave hours from one entitlement to the other?

Yes - see our support note Adjusting leave accruals.

What if I want to track a dollar amount provision for the long service leave liability?

See our support note .