Since January 2020, Victoria’s Portable Long Service Leave Scheme has allowed workers in sectors such as community services, contract cleaning and security to accumulate long service leave even when they move between employers within the industry.
The scheme, administered by the Portable Long Service Leave Authority (PLSLA), was designed to support employees working in sectors where long-term employment with a single organisation is less common. While the scheme has been widely welcomed by employees, it has also introduced new operational, cash flow and accounting considerations for employers.
As more employees begin approaching the scheme’s vesting period it is becoming increasingly important for organisations to understand how the scheme works and ensure their accounting policies clearly reflect their approach.
Understanding the scheme
Under the Victorian scheme, eligible employers must register employees and pay a quarterly levy to the PLSLA based on employee wages.
Employees accumulate service across the sector rather than with a single employer. Once they reach the required service threshold, they’ll become eligible to access their long service leave entitlement.
What happens when employees reach the vesting period?
When employees reach the required service threshold, they may claim an entitlement from the portable scheme.
In this instance:
- Employees claim their entitlement directly from the PLSLA through the worker portal
- The scheme funds the leave payment (excluding any oncosts)
- The employer needs to ensure the correct levy contributions have been made to the fund
- Employee superannuation contributions as entitled are not covered by the fund
Employers need to ensure employee registrations and historical levy payments have been correctly reported.
Alternatively, an employee can elect for their organisation to make the payment on behalf of the authority through a leave nomination form. In this case, the employer will then apply for a reimbursement from the authority with the acceptance of the employee.
Accounting treatment
Perhaps the most challenging area is determining the appropriate accounting treatment for portable long service leave.
Long service leave provisions are recognised under Australian Accounting Standards AASB119 relating to employee benefits. This involves estimating:
- Which employees are expected to qualify
- Future cash outflows when leave is taken
- Applicable oncosts such as Superannuation, workcover and payroll tax
- probability factors
- Discount rates
Portable long service leave schemes complicate this process because they introduce another party — the scheme authority, into the funding of the benefit. This raises an important question:
Who ultimately bears the obligation for the long service leave entitlement — the employer or the portable scheme?
The Industrial Relations Act, other applicable awards and Enterprise Bargaining Agreements require employers to provide Long Service Leave to their employees in accordance with their entitlement. The employer therefore retains the primary responsibility for long service leave.
Organisations should consider:
- Recognising a full long service leave provision in their financial statements in accordance with AASB 119
- Recognising a receivable for amounts expected to be recovered from the PLSLA (where recovery is virtually certain)
The accounting standards generally prevent offsetting these balances, so the provision and asset should be presented separately in your organisation’s financial reports.
Estimating recoverable amounts can be difficult due to factors such as:
- Service before the scheme began not being covered
- Superannuation on leave not being reimbursed
- Enterprise agreements providing more generous leave entitlements
- Employees working in jurisdictions without portable schemes
Why accounting policy transparency matters
Because multiple interpretations can be reasonably supported under accounting standards, its important organisations ensure their accounting policies clearly and transparently describe how portable long service leave is recognised in their financial statements.
Transparent financial statement disclosures help stakeholders understand:
- Whether long service leave provisions are recognised
- Whether assets are recorded
- How employer contributions to the scheme are treated
Final thoughts
Portable long service leave schemes represent an important shift in how employee benefits are delivered in sectors with high workforce mobility.
As more employees begin reaching the vesting period, organisations should ensure they are prepared both operationally and financially.
As employees more across the applicable sectors, employers are accepting that the liability for Long Service Leave entitlements have become a present obligation despite the period of service with an individual organisation.
If you are unsure how the scheme should be reflected in your organisation’s accounts, seeking advice early can help avoid confusion as employees begin accessing their entitlements.
