Peter Strong: If we take the ‘long service’ out of long service leave, what’s the point?

The Barr Labor government in the Australian Capital Territory has approved long service leave in an expanded range of industries for employees even though they haven’t worked for the same employer for a long period. It is now more costly and complex to employ someone in the ACT than elsewhere, but it won’t stop there.

Australia is one of very few countries that has long service leave (LSL). Workers get LSL when they have worked for the same employer for a certain amount of time as a reward for loyalty and a way to keep skilled staff. It used to be three months fully paid leave after 10 years of continuous service, but has been shortened in many instances to seven years. In one industry, it is now five years.

And it’s not just the ACT. With Labor in government across the mainland and unions fully in control of national IR policy, there is a push for everyone to get LSL — no matter who they work for or how long they work. A person could work spasmodically for 30 different businesses over a long period and get three months of LSL at some stage. Bizarre. 

There are already some industries where there are ‘portable LSL’ provisions, such as construction, where projects very rarely last 10 years so many workers don’t get the chance to show loyalty to one employer. The proposed changes are likely to extend this ‘portable’ LSL to all sectors of the workforce. 

This is a big change that will add yet another cost of doing business for small business employers. More fundamentally, it means LSL will no longer be about loyalty. It will change the concept profoundly. There will be an increase in costs for employers – but no returns in productivity or loyalty.

And, as with any change in leave or new leave provisions, the proposal raises a series of questions. How does it enhance worker productivity? How will it be managed? Who will pay for it?

How long service leave came to be in Australia

The use of LSL started in the 1860s to attract more people from England into public sector jobs in Australia and New Zealand. A person who worked for 10 years for a colonial government was given three months paid leave – one month to sail home, a month in England to visit relatives, and then a month to sail back to Australia – knowing their job was waiting for them.

Eventually LSL was extended to all public servants even though they didn’t go to England. Then it was extended to all workers in any business.

The proposed change would mean that every pay day, an extra amount of 2.5% of an employees pay would be sent off to a fund, similar to the way super payments are transferred to industry superannuation funds. And the business who is employing the worker when LSL falls due and is taken, gets the rough end of the stick by having to give the time off and hold the job open until they return. Such an approach is unworkable for a small retail shop or retail business.

Under the proposal a person could work one week, or a few hours, for someone, and still get LSL credited to them. They could take 30 years to accrue seven years’ work and then get three months off from a job they might have been in for a week. 

This is just extra leave for no reason at all.

Long service leave gave employers more incentive to train workers as they knew there was a better chance that worker would stay with the company to get their LSL. But if a worker can change employers and keep LSL rewards, where is the incentive to train someone? And where is the need to be loyal to an employer if there is no reward for loyalty?

Is ‘LSL for everyone’ fit for purpose? No, it isn’t. You would have to change the name… to what? What is the purpose of the new LSL? What does it reward?

How will it be managed? The LSL component would be collected from the employer on payday and sent to a designated LSL fund for investment until the worker claimed the funds. Will the employer have to get the money and put it through their pay process or will the employee be responsible for accessing the LSL funds directly? 

All workers will contribute to the LSL but some may not be eligible to collect that money or will not claim their funds for whatever reason. Then where does it go? Shouldn’t it go back to the employer? Excess funds will likely go to unions – a very nice arrangement!

So an employee will get LSL and won’t have to work for the same employer, nor work continuously, nor be a good employee and not steal things. This isn’t long service leave; I have no idea what it will be called.

Maybe ‘leave just because’.

Peter Strong is the former chief executive of the Council of Small Business Organisations Australia.