How long service leave works in NSW

What long service leave is and why it exists

Long service leave is a paid break that rewards an employee for staying with one employer over a long period. In New South Wales the entitlement comes from the Long Service Leave Act 1955 (NSW) (the Act), one of the oldest workplace statutes still in daily use. It behaves differently from annual leave. Annual leave accrues steadily, week by week. Long service leave vests in blocks once an employee reaches set milestones of continuous service with the same employer, and nothing is payable until those milestones are hit.

That structure matters for business owners because it creates a hidden liability. The entitlement does not appear on a payslip each fortnight, yet it is accruing in the background, and it can crystallise as a lump sum at an awkward moment: a long-serving employee resigns, a restructure ends a 12-year tenure, or the business is sold and the buyer asks who owes the accrued leave.

This article walks through how the scheme operates: who is covered, how the entitlement builds up, what counts as continuous service, what happens when employment ends, and how the leave is paid.

Who is covered by the Act and who is not

The Act applies to "workers", a deliberately wide category. Under s 4(11)(a), service counts whether it is on a permanent, casual, part-time or any other basis, under one or more contracts of employment. The NSW Government's guidance confirms the Act covers full-time and part-time employees, casuals, pieceworkers, commission-only workers and outworkers. A casual who has worked for the same employer for ten years is entitled to long service leave in the same way as a full-timer, although the service calculation is usually more complicated.

Not everyone who works in NSW is covered by the Act. Section 5 excludes workers whose award or enterprise agreement gives them more favourable long service leave, and the following groups receive their entitlement from other sources:

Award and agreement workers: National system employees whose award, enterprise agreement or pre-modernised award provides long service leave. Modern awards cannot include long service leave terms, and state long service leave laws generally prevail over enterprise agreements, so for most private-sector employers the Act is still the starting point.
Public sector workers: NSW government sector employees covered by the Government Sector Employment Regulation 2014, Commonwealth employees, and local government workers under the Local Government State Award 2023.
Portable scheme industries: Building and construction, community services and contract cleaning workers registered under portable long service leave schemes administered by the Long Service Corporation, and black coal mining workers under the national Coal LSL scheme. Section 5A of the Act stops an employer from simply granting long service leave to a registered worker under those schemes unless the worker applies for it.

The practical question for an employer is always which instrument governs a particular worker. For most small and medium businesses in NSW, that is the Act.

The core entitlement: two months after ten years

The central rule is in s 4 of the Act. Every worker is entitled to long service leave on ordinary pay in respect of their service with an employer. The amount is measured in blocks:

After 10 years of continuous service, the worker is entitled to 2 months of paid leave.
For each additional 5 years of service completed after that, the worker gets another 1 month.
The Act defines a month as 4 and one-third weeks, so the entitlement is really measured in weeks: 8.67 weeks at the 10-year mark, then 4.33 weeks for every further five years.

To put it in figures: 15 years of service means 3 months, or 13 weeks. Twenty years means 4 months, or 17.33 weeks. There is no cap, and the leave continues to grow with every five-year block.

There is a separate rule for workers who terminate between 10 and 15 years of service. Under s 4(2)(a)(ii), if a worker who has completed at least 10 but fewer than 15 years has their services terminated or ceasing for any reason, they receive a proportionate amount calculated on the basis of 3 months for 15 years of service. In practice that is the same outcome as the block rule: someone finishing at 12 years gets roughly 2.4 months.

What counts as continuous service

The whole scheme turns on continuous service with the same employer. If service is continuous, the years add up toward the milestone. If it is broken, the clock restarts from zero.

Section 4(11)(a1) sets out the situations where a break in work does not break continuity. The list is generous, but the consequences differ depending on the reason for the absence. Some absences keep the service continuous and count toward the service period. Others keep it continuous but do not count, which pushes the milestone date out.

Absences that keep service continuous and count toward the period include:

Absence under the terms of employment: paid leave such as annual leave, sick leave and paid parental leave counts fully.
Illness or injury: any paid or unpaid absence because of illness or injury keeps service continuous and counts toward the service period, per the NSW Government's guidance.
COVID-19 stand-downs: a worker stood down without pay during the pandemic period from 11 March 2020 to 31 March 2022 is treated as continuing to accrue long service leave under s 15C of the Act.

Absences that keep service continuous but do not count toward the service period include:

Agreed unpaid leave: any period of unpaid leave the employer agrees to, for example extended travel or personal time off, does not break service but does not count.
Unpaid parental leave: unpaid parental leave does not break service, but it does not count toward the service period unless the employment contract says it does. Paid parental leave, by contrast, counts in full.
Slackness of trade: time off because the employer does not have enough work, including casuals not being rostered during a downturn.
Industrial disputes and re-employment breaks: a break caused by the employer where the worker is re-employed within two months.

The difference is easiest to see with an example. A worker who has completed nine years of service takes twelve months of unpaid parental leave. On return they still have nine years of service, not ten. They need to work an extra 364 days before the ten-year milestone is reached. Nothing about the continuity was broken, but the milestone moved.

Illness and injury work the other way. A worker who takes eight weeks of sick leave after an accident has that time counted as service, and their ten-year anniversary arrives on schedule.

Two further continuity rules matter in practice. First, when a business is sold, s 4(11)(c) deems the worker's service to be continuous with the new employer. The buyer inherits the entire accrued entitlement, including service with the previous owner, and a sale contract cannot lawfully exclude it. Second, transfers between related companies within two months, and apprenticeships followed by employment within twelve months, also preserve continuity.

Pro-rata entitlement when employment ends

If the worker resigns before ten years are up, whether anything is paid depends on how long they served and why the employment ended.

Under five years of service, there is no entitlement at all, pro-rata or otherwise.

Between five and ten years, s 4(2)(a)(iii) gives a pro-rata payment, calculated on the basis of two months for ten years, but only where the termination falls within one of three categories:

the employer terminates the employment for any reason other than the worker's serious and wilful misconduct,
the worker resigns on account of illness, incapacity, or domestic or other pressing necessity, or
the worker dies.

The resignation limb is where disputes concentrate. A worker who simply resigns to take another job gets nothing, no matter how close they are to the ten-year mark. A worker who resigns because of illness, incapacity or a genuine domestic or pressing necessity must prove that the reason was their genuine motivating reason for leaving, and that it was reasonable to resign in the circumstances. Lifestyle choices and personal preferences do not qualify. The onus sits on the worker on the balance of probabilities.

Serious and wilful misconduct is the employer-side exclusion. It is more than poor performance. The NSW Government's guidance lists theft, fraud, assault or sexual harassment, causing a serious and imminent risk to health, and refusing reasonable and lawful instructions as examples. The employer carries the burden of proving that the dismissal was for serious and wilful misconduct, and it is a fact-specific assessment.

Once ten years of service are complete, the position simplifies: the worker is entitled to payment of the untaken leave on termination for any reason, including a straightforward resignation. A worker who finishes at 12 years receives the pro-rata amount on the 3-months-per-15-years basis, and one who finishes after 15 years receives the banked entitlement plus a proportion for the years since the last five-year block.

When the entitlement is payable on termination, s 4(5)(a) requires the employer to pay the worker's ordinary pay for the untaken leave in full, promptly upon termination.

Taking the leave and getting paid

The Act gives the employer significant control over when long service leave is taken. Under s 4(3), the employer must give the leave and the worker must take it as soon as is practicable having regard to the needs of the employer's establishment. That wording lets a business schedule the leave around operational needs rather than the worker's preferences, though the employer must give at least one month's notice of the proposed leave dates under s 4(10), or less if the worker agrees.

The leave does not have to be taken in one block. It can be split into separate periods by agreement, and since 2019 employer and worker can agree to take it in separate periods of not less than one day under s 4(3AA). Leave can also be taken in advance of the milestone by agreement under s 4(3A), which is common where a worker is close to ten years and wants to travel. If the worker later leaves before the advance leave is earned back, the employer may deduct the excess from final pay under s 4(5)(c), capped so the deduction cannot exceed the ordinary pay that would have been payable.

The leave is paid at ordinary pay, which the Act defines in s 3. For a worker paid at an ordinary time rate, it is the greater of the current ordinary rate and the average weekly ordinary remuneration earned during the preceding five years. For workers not paid wholly at an ordinary time rate, such as casuals and commission workers, it is the average weekly wage earned over the five years ending on the prescribed date. The five-year averaging exists to stop a worker who worked full-time hours for years from being paid at a rate based on a recent period of reduced hours.

Payment can be made in full when the leave starts, or at the same times the worker's ordinary pay would have been paid, or in any other agreed way under s 4(7). Long service leave is exclusive of annual leave, so a worker does not use up annual leave while on long service leave, and a public holiday that falls during the leave extends the leave by a day if the worker would have been paid for that day.

Can long service leave be cashed out?

No. While the employment continues, long service leave cannot be cashed out. Section 4(8) is blunt: except on termination, an employer must not pay a worker in lieu of any long service leave or part of it, and the worker must not accept such a payment. An agreement between employer and worker to trade the leave for cash is ineffective. This is a point where NSW differs from some other states, so advice prepared elsewhere should not be assumed to apply.

The one exception is termination. When employment ends and untaken leave has accrued, the worker does not need to ask for a payout. Section 4(5) deems the worker to have entered upon the leave from the date of termination and requires the employer to pay the ordinary pay for it in full. If the worker has died, the payment goes to their personal representative.

Where the scheme bites: disputes and pitfalls

The disputes in this area rarely turn on the headline rate. They turn on the service count and the pay rate, which is why the new NSW Industrial Relations long service leave guidance, in effect from 1 March 2026, is worth knowing about. It sets out how the regulator will interpret continuous service, absences for casual workers, fixed-term contracts, fluctuating hours, when to use ordinary remuneration rather than average weekly wage, and how bonuses are treated.

The common failure points for employers are:

Miscounting service years: Every approved unpaid absence, every casual gap caused by a downturn, and every period of unpaid parental leave pushes the milestone out. An employer who pays out at the wrong milestone has underpaid or overpaid, and either way creates a dispute.
Casual service records: Casuals accrue service, but their absences are harder to characterise. Not being rostered because of a downturn does not break service but does not count toward it. Poor records make the calculation unworkable.
Business sales: The buyer inherits the accrued liability for all prior service, and the sale contract cannot exclude it. Sellers should price the liability in, and buyers should verify the seller's service records before settlement.
Advance leave: Leave given in advance that is not earned back before termination is deductible, but only up to the amount that would have been payable had the leave been taken at termination.
Records and recovery: The Act requires long service leave records to be kept, and inspectors can require their production under s 9. A worker can recover unpaid long service leave through the Local Court or the Industrial Relations Commission in Court Session within a six-year window under s 12, and the regulator can pursue underpayments.

The updated 2026 guidance is not a change to the Act, and it does not apply retrospectively to resolved cases. But it signals how NSW Industrial Relations will treat new complaints and audits, and it is the best available statement of how the grey areas will be resolved.

When a lawyer helps

Long service leave looks simple until it is not. The calculations are genuinely intricate where hours fluctuate, where a worker has moved between full-time and casual work, or where unpaid leave and illness absences are interleaved over a decade. A lawyer can reconstruct the service history, apply the continuity provisions, and produce a defensible accrual figure before a dispute starts.

The high-stakes moments are terminations and business sales. Before dismissing a long-serving worker, it is worth checking whether a pro-rata entitlement has vested and whether the reason for termination fits the qualifying categories, including whether the employer can prove serious and wilful misconduct. Before buying or selling a business, the accrued long service leave liability should be quantified and dealt with in the contract, because the Act overrides any attempt to contract it away. A lawyer can also advise on which instrument governs a particular worker where awards, agreements and the Act overlap, and can defend or run recovery proceedings if a dispute has already crystallised.

Why the service count is the real battleground

The rate of long service leave is fixed by the Act and rarely contested. What is contested is the number of years that count. A single year of unpaid parental leave, an extended agreed absence, or a stretch of unrostered casual work can push a milestone out by months, and that one year can mean the difference between a five-figure payout and nothing at all. Because the entire accrued balance becomes payable at once on termination, the error is amplified at exactly the moment the relationship ends.

The disciplined approach is to keep an accurate absence and service record from day one, review it before any termination or sale, and get the calculation checked when the stakes are real. The cost of checking a service calculation is trivial next to the cost of getting it wrong at the end of a ten-year relationship.