It is very easy to set up Long Service Leave (LSL) accrual in Xero, though you do need to take into account the complexities of the different legislation in each of the states. The following is a guide for setting up LSL in Xero for payrun purposes.
In all Australia states employees will become entitled to their full LSL entitlements (2 months (8.67 weeks)) after they have completed 10 years’ continuous service with their employer. The exception is ACT with 7 years where employees become eligible.
In many parts of the country, employees may be eligible to receive a ‘pro-rata’ payout of their LSL entitlements if their employment comes to an end before they become eligible to take their accrued LSL. Generally, a pro-rata entitlement will arise after 7 years’ continuous service, though in NSW, the NT and the ACT, employees will usually receive pro-rata entitlements after just 5 years of employment with your client.
Certain criteria must be met before a pro-rata payment is made, e.g. employee is minimum retirement age, resigns due to illness or domestic necessity, dies, is dismissed for reasons other than misconduct.
In QLD, WA & SA employees may “Cash Out” their entitlement. It is against the law to cash-out LSL entitlements in NSW, VIC, the NT and the ACT.
These entitlements can be summarised as follows:
|State||Full LSL||Pro-rata LSL||“Cash Out”|
|ACT||7 years||5 years||No|
|NSW||10 years||5 years||No|
|NT||10 years||5 years||No|
|QLD||10 years||7 years||Yes|
|SA||10 years||7 years||Yes|
|TAS||10 years||7 years||No|
|VIC||10 years||7 years||No|
|WA||10 years||7 years||Yes|
Calculation of accrued leave
The base calculation for accrued leave:
“After 10 years you get 2 months LSL.”
2 months = 8 weeks = 320 hours (on a 40hr week)
10 years = 520 weeks
How many hours per week are accrued ?
320/520 = 0.615 hours every week is accrued.
However each state is different and you should check state specific LSL provisions that apply in your situation.
For example in WA you get 8 2/3 weeks leave after 10 years and 4 1/3 weeks entitlement after each subsequent 5 years. Only after 7 years can the accrual be ‘cashed in’ on termination.
8.66 weeks = 346.4 hours (40 hour week)
If using a Fortnight calendar, then 10 years = 260 pays
How many hours per pay are accrued ?
346.4/260 = 1.3323 hours every pay is accrued.
Accruing LSL in Xero
You can accrue LSL in Xero so that it appears on the payslip without making an actual payment.
Take the situation where the LSL scheme has the employer pay 2.7% of base wages (similar to super):
1. Create a new Earnings Rate with the menu Settings > Payroll Settings > Pay Items > Earnings Rates > Add Earnings Rate.
2. Enter Name, Earnings Type, Account, Rate Type, Type of Units and Rate per Unit (if required). You need to tick “Exempt from Superannuation Guarantee Contribution”.
3. Create a new Deduction Type by going to Settings > Payroll Settings > Pay Items > Deductions > Add Deduction Type.
4. Enter Name (same as earnings type) and Account. Place a tick on Reduces “PAYG Withholding”.
Next add these new items to the employees pay template.
5. Go to Payroll > Employees > select Employee > Pay Template > Add Earnings Line & Deduction Line and select the new types you have just created. You will need to enter the same amount in each line so the employee net pay will not be affected.
The contribution will appear twice on the employees payslip, once as an earnings item and the other as a deduction.
To recap :
1. Settings + Pay Items + LSL + Annual 34.64
+ Pay Items + Deductions + 34.64
2. Employee + Opening Balances + Add + LSL = Say 100 for someone working around 3 years??
3. Employee + Pay Template + Add + LSL + 34.64 per year in Pay Items and Deductions
4. Pay Run as normal and Long Service Leave will accrue.