Since January 2020 Victoria’s portable long service scheme means workers in community services, contract cleaning and security can accrue long service entitlements and transfer them from job to job.

While the scheme has broadly been regarded as a win for employees working in this sector there are a number of downsides for employers, including:

• Upfront levy costs to the Portable Long Service Leave Authority (PLSLA) as opposed to waiting for staff to become eligible for their long service leave entitlement;
• Immediate quarterly cash flow impacts due to levy payments;
• Additional administration requirements;
• Complexity and uncertainty regarding accounting treatment.

 

Accounting Treatments:

We have previously suggested an accounting treatment here.

However, we acknowledge that there is an alternative view on how to account for portable long service leave, which also has merit. This method involves recognizing a receivable from the PLSLA and the full long service leave entitlement for the employee.

“What is the difference between the 2 approaches?”

Ultimately, there is a fundamental question around who bears the responsibility for an employee’s long service leave obligation. Is it the employer or the PLSLA?

If an employee has not reached 7 years of service with an employer, but has been in the scheme for 7 years, they are still entitled to a cash payout from the scheme.

It is only when an employee reaches 7 years of service that they can request long service leave from an employer.

Based on these factors, it appears that the obligation seems to be with the PLSLA, at least until an employee hits 7 years of employment with a single employer. This would support the idea that there is no legal entitlement by an employer to a refund from the PLSLA prior to the 7th year of employment with a single employer.

Accounting issues:

• Since the launch of the portable long service leave scheme in Victoria in 2019, a significant change to the scheme has been a move away from the ‘predominance test’ and instead applying the awards-based test. Assessments of an organisation’s eligibility and an individual employees eligibility to join the scheme can be complex, depending on individual circumstances.
• There is a lack of certainty around the amount that the PLSLA will refund to the employer if the employee is entitled to a more generous payout as a result of a more generous EBA or Fair Work instrument.
• The PLSLA does not pay for superannuation. This continues to be an employer obligation should an employee choose to utilise their long service leave with an employer. The accounting standards require an employer to account for a provision for the superannuation oncosts in relation to long service leave.
• If an organisation chooses to recognise a receivable from the PLSLA. At the end of the year for financial reporting purposes, the asset should be remeasured for:
• Inflation of staff wage costs: the PLSLA should refund the organisation at the employee’s current wage rate.
• Former employees: When an employee ceases employment (and is not entitled to a long service leave payout), the amounts paid to the PLSLA are no longer receivable from the authority.

Overall, this creates a mismatch between the levy paid to the PLSLA and the receivable balance at year end.

 

Common Questions:

Who is eligible for Portable Long Service Leave?

Which industries are covered by the scheme?

How does the Portable Long Service Leave Scheme work?

How do I register for Portable Long Service Leave?

How is portable long service leave funded?

How do employees claim portable long service leave?

 

Concluding thoughts:

With the divergence of viewpoints regarding the accounting treatment for portable long service leave, we believe it’s more important than ever to ensure that the accounting policy notes in your financial statements are written in a clear, understandable manner that describes your organisation’s accounting policy choices.

If you have any questions about how to account for portable long service leave, please don’t hesitate to contact us.