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Who doesn’t love extra time to take a break? Long service leave in New Zealand is a fantastic way to reward those loyal, long serving employees who deserve that extra time off. While it’s optional to offer long service leave in NZ, that doesn’t mean that there’s no rules around it. Compliance is still important to ensure that leave is issued correctly. We can look at an Australian case with Woolworths to learn how we can avoid their costly mistake. This blog will aim to better equip you to handle long service leave if you decide to offer it to your employees and explain how long service leave can be a great addition to your workplace.
A Costly Payroll Mistake
Australian supermarket giant Woolworths recently found itself embroiled in a payroll scandal, admitting to underpaying over 1,200 employees in the state of Victoria by $1.24 million between 2018 and 2023. The underpayments, which ranged from a few hundred dollars to up to $12,000 per employee, were related to miscalculated long service leave entitlements.
Following the revelation of these underpayments, Woolworths was fined a total of $1.263 million, with its subsidiary Woolstar fined $36,000. Magistrate Nahrain Warda described the payroll error as a “systematic and widespread failure” by one of the nation’s largest private employers.
“It is expected that such a large corporation, that expands across all of Australia, would consequently have thorough payroll systems in place.”
The court heard that Woolworths updated its payroll system in 2014 but did not conduct an audit until 2020, after “red flags” emerged in 2019. Woolworths self-reported the underpayment issues to Victoria’s Wage Inspectorate upon discovering the discrepancies during this review.
For many businesses, issuing long service leave may seem like an extra expense, or in the case of Woolworths, you may just see the big million-dollar fine. But the dollar figure doesn’t tell the full story of how this underpayment affected the employees. Robert Hortle, Commissioner of Wage Inspectorate Victoria, added,
“Even such a gigantic dollar figure doesn’t tell the full story. Long service leave was miscalculated so staff weren’t aware of their full leave entitlement and therefore lost the opportunity to travel, to spend time with family, or to recharge their batteries.”
Leave is a vital part of the workplace, allowing employees to take precious time off so they can return to work with a better refreshed mindset. Without a reliable payroll system in place, these errors can lead to significant financial penalties, loss of employee trust, and reputational damage.
While this incident occurred in Australia under Victoria’s mandatory long service leave laws, it serves as an important reminder for New Zealand employers to ensure compliance with our own legislation and employment agreements. Payroll mistakes can be easily avoided with the correct payroll systems in place. If you’re not yet offering long service leave for your long-standing employees, keep reading to find out how to implement this in your workplace to avoid similar issues and to support your employees’ wellbeing.
What is Long Service Leave?
Long service leave is a type of paid leave granted to employees who have worked continuously for the same employer for a certain number of years. Although long service leave is not mandatory in New Zealand like it is in parts of Australia, many Kiwi businesses choose to offer it as a way to reward employee loyalty and tenure. In New Zealand, the specifics of long service leave entitlements are negotiated between employers and employees as part of individual or collective agreements, or outlined in company policies.
If you’d like to include long service leave in your company policies, you must clearly define:
- The minimum length of service required to qualify for the entitlement (e.g. 5, 7 or 10 years)
- Include any conditions that may affect eligibility, such as part-time or casual employment status.
- The amount of long service leave provided (e.g. 1-2 weeks)
- Any other long service benefits included
- Rules around taking the leave (e.g. all at once or in increments, whether there is a timeframe to take it)
- Outline any notice period required for taking long service leave.
- State the policy for any unused long service leave at the end of employment (e.g., it will be paid out).
When long service leave is taken, it is typically paid at the employee’s ordinary pay rate. It will also be taxed the same as all other types of income. At the end of employment, any unused long service leave is usually paid out, similar to annual leave.
Compliance is Key
While offering long service leave is optional for Kiwi employers, proper compliance is essential for those who do. If your employment agreements or policies contain long service leave provisions, you are legally obligated to provide that entitlement when employees meet the defined criteria.
To stay compliant and avoid a payroll scandal:
- Ensure long service leave policies are clearly documented in the company’s workplace policies or the employment contract.
- Regularly audit payroll systems to check long service leave is being accurately accrued and paid
- Keep detailed records of long service leave balances and payments
- Invest in a payroll system that can:
- Accommodate long service leave entitlements
- Automate long service leave accrual and payment calculations
- Generate reports for long service leave balances and record-keeping
- Integrate with time and attendance systems to track leave taken
- Partner with a payroll provider that offers excellent support, so you can get quick answers to compliance questions
- Seek guidance from employment law experts if you are still unsure about compliance obligations
A reliable, feature-rich payroll system is a crucial tool for maintaining long service leave compliance. By automating calculations, generating reports, and keeping accurate records, you can minimize the risk of errors and underpayments. When combined with clear policies and expert support, the right payroll software can give you peace of mind that you’re meeting your long service leave obligations.
The Benefits of Long Service Leave
While New Zealand companies are not obligated to offer long service leave to their employees, there are numerous advantages to doing so. Providing long service leave can greatly enhance employee well-being and serves as a valuable tool for employers who want to:
Recognize and reward employee loyalty
Long service leave is a meaningful way to show appreciation for employees’ dedication and hard work over the years. It acknowledges their commitment and reinforces the value the company places on long-term contributions. This recognition can enhance employee morale and job satisfaction, fostering a positive work environment.
Improve retention and reduce turnover costs
Offering long service leave can significantly impact employee retention. When employees know they will be rewarded for their loyalty, they are more likely to stay with the company for extended periods. This reduces turnover rates, leading to lower recruitment, training, and onboarding costs. High retention rates also contribute to maintaining organizational knowledge and stability.
Boost employee wellbeing by enabling extended breaks
Long service leave provides employees with the opportunity to take extended breaks from work, allowing them to rest, recharge, and spend quality time with family and friends. This can help prevent burnout, reduce stress, and improve overall mental and physical health. Employees who return from long service leave are often more motivated, productive, and engaged in their roles.
Manage Long Service Leave with Crystal Payroll
To avoid the pitfalls Woolworths encountered, it is essential to have a reliable payroll system in place. Crystal Payroll simplifies the management of long service leave, ensuring both ease of use and compliance with legal requirements. With the user-friendly interface, employers can effortlessly enable long service leave entitlements for their staff. The system allows you to set eligibility based on continuous employment years and specify the number of extra days leave granted once eligible. Have your long service leave set up to be compliant and accurate in just 4 simple steps!
After enabling Long Service Leave Entitlement in the company settings, further details can be adjusted in each employee’s individual leave settings. Here, their eligibility date, leave days, and the frequency of how often they will receive long service leave can be customized. This is particularly useful when only certain types of employees are eligible for long service leave, and different positions may receive varying amounts of leave days. This complete customizability allows employers to tailor their long service leave policies to fit their specific needs.
Crystal Payroll tracks and records employee leave meticulously, providing a suite of comprehensive reports that help audit and showcase both leave taken and entitlements received. This ensures transparency and accuracy in managing long service leave. Furthermore, employers can choose to display the long service leave entitlement on employee payslips, enhancing transparency and trust.
However, it’s important to note that long service leave in NZ is contract-based. As such, it may or may not be paid out at the end of employment depending on what is agreed on, unlike annual leave. This is why long service leave is not included in Crystal’s Final Pay calculation. Employers can manually add it as an “Other Income” item to include it in the gross earnings for the final pay, and the system will automatically handle the 8% calculation.
By using Crystal Payroll, businesses can streamline their payroll processes, reduce administrative burden, and ensure they remain compliant with long service leave regulations.
Ready to simplify your payroll processes and ensure compliance with long service leave regulations? Try Crystal Payroll today and experience the benefits of a robust payroll system that supports both your business and your employees. Visit our website to learn more and get started!
Conclusion
In summary, while long service leave compliance looks quite different in New Zealand compared to parts of Australia, Woolworths’ costly mistakes shows the importance of getting it right. By maintaining clear, compliant long service leave policies and ensuring your payroll system provides all the tools for implementing long service leave, Kiwi employers can reap the benefits of this leave while avoiding expensive payroll scandals.
Disclaimer: This blog post is intended for informational purposes and should not be considered as financial or legal advice. Always consult with professionals for tailored guidance.
