Q. Our company is reviewing our leave policy and currently looking at long service leave. At the moment, the policy prohibits an employee from cashing out long service leave however we often receive requests from employees wishing to cash out leave due to financial difficulties. 

The policy has not been reviewed since the introduction of the Fair Work Act. The company is not sure whether there have been any changes in the relevant state or territory long service leave legislation during that period which may affect the policy. 

Our company operates in every state and territory except Tasmania. Would terms of the company policy which permits the cashing out of long service leave for our employees contravene any law? 

 

A. The company policy must comply with the relevant state or territory long service leave legislation to be legally applicable. Cashing out of long service leave is not a ‘standard’ provision among the various jurisdictions so it would be appropriate for the policy to refer to the relevant state or territory long service leave law to determine whether or not cashing out of long service leave is permitted. 

 

Overview of legislation 

Long service leave (LSL) is state and territory based, and whether it can be cashed out depends entirely on the relevant jurisdiction’s legislation.

In South Australia, the Long Service Leave Act 1987 [SA] provides that where an employer and an employee agree, an employee who has worked for 10 years or more may cash out either part or the whole of their accrued long service leave. To cash out entitlements, the employer and the employee must make an individual written agreement that is signed by both parties. The agreement can only be made after the employee has completed 10 or more years’ continuous service. 

In Queensland, the Industrial Relations Act 2016 provides that an employee may make a written and signed agreement with their employer to receive payment for all or part of their long service leave entitlement instead of taking the leave if permitted by the applicable industrial instrument. If the employee is not covered by an industrial instrument or if the applicable instrument does not provide for payment in lieu of long service leave, the employee may make an application to the Queensland Industrial Relations Commission for an order to make a payment. Such an order for payment would only be granted on compassionate grounds or financial hardship. 

In Western Australia, the Long Service Leave Act 1958 [WA] (s.5) states that a written agreement can be made in which an employee can trade some, or all, of their long service leave for an adequate benefit in lieu. This means the employer and employee may agree to cash out an employee’s long service leave once the employee has completed the necessary service and the leave has accrued. This agreement must be in writing. It would seem “an adequate benefit” would be payment at the employee’s current ordinary rate of pay as defined by the Act. 

In Tasmania, the Long Service Leave Act 1976 [Tas] permits cashing out of long service leave. It provides that where an employee becomes entitled to long service leave under the Act, he/she may, by agreement, elect to accept payment in lieu of long service leave. 

In NSW, Victoria, ACT and NT, cashing out long service leave is prohibited. 

 

Bottom line 

Whether long service leave can be cashed out depends entirely on the applicable state or territory legislation. In most jurisdictions, cashing out while employment continues is prohibited. 

A company policy should not permit cashing out unless the relevant legislation expressly allows it and all statutory conditions are met.