Long service leave in Victoria and employer obligations under the LSL Act 2018

Long service leave is a statutory obligation, not a reward

If you employ staff in Victoria, long service leave is a statutory entitlement, not a benefit you can choose to give or withhold. Since 1 November 2018, the Long Service Leave Act 2018 (Vic) (the LSL Act) has set the minimum standard, replacing the Long Service Leave Act 1992 (Vic). It works differently from the old regime. Employees now accrue long service leave continuously, at a rate of one sixtieth of their period of continuous employment, and they can access it once they have completed seven years of continuous service with one employer.

The stakes have also risen. Since 1 July 2021, the Wage Theft Act 2020 (Vic) has made the dishonest withholding of employee entitlements, which includes long service leave, a criminal offence, and the regulator Wage Inspectorate Victoria enforces the LSL Act directly. This article sets out the six duties the Act places on employers: tracking continuous service, granting leave properly, paying the correct amount, paying out on termination, keeping records, and handling agreements carefully. It then covers the penalties for non-compliance and a checklist you can act on.

Who the LSL Act covers

The Act applies to employers of employees who work in Victoria, and the obligations start from the first day of employment, not from the seven-year mark. Who the Act covers comes down to three categories:

Employees: Full-time, part-time, casual and seasonal staff are all covered. Casual employees can accrue long service leave where their engagements count as continuous employment under the Act's rules.
Independent contractors: Genuine contractors are not employees and do not accrue long service leave. If a worker labelled a contractor is in substance an employee, the Act applies to them, so the classification decision matters and carries separate risks under federal workplace law.
Excluded workers: The Act does not apply to some employees, including construction industry workers covered by the Construction Industry Long Service Leave Act 1997 (Vic), which operates a portable fund, certain employees under the Education and Training Reform Act 2006 (Vic), and employees whose employment agreement gives them more favourable long service leave (s 5).

The threshold that brings the full entitlement into play is seven years of continuous employment with one employer (s 6). But because the entitlement accrues from the start, and because you must keep records from the start, the practical obligations begin on day one.

Track continuous service from the first day

The core duty is knowing how much continuous service each employee has built up, because it drives both the seven-year trigger and the amount of leave owed.

Under s 6 of the LSL Act, once an employee completes seven years of continuous employment, they are entitled to leave equal to one sixtieth of their total period of continuous employment, less any long service leave already taken. A simple way to see the accrual: seven years of continuous service (about 364 weeks) produces roughly six weeks of leave, and ten years produces about eight and a half weeks. The leave keeps accruing at the same rate for as long as the employee stays.

Not every absence breaks the clock. Under s 12, employment is taken to be continuous despite absences for annual leave, long service leave, carer's leave, leave on account of illness or injury, and paid or unpaid parental leave. For casual and seasonal employees, parental leave preserves continuity only up to 104 weeks.

There is an important distinction between continuity and counting. Under ss 13 and 14, paid leave counts as service for the accrual, and unpaid leave counts up to 52 weeks. If unpaid leave runs longer than 52 weeks, only the first 52 weeks count towards the entitlement unless you and the employee agreed in writing before the leave began that the whole period counts, or the leave is on account of illness or injury or is otherwise provided for under the employment agreement. So an employee who takes extended parental leave keeps their place on the seven-year clock, but the unpaid weeks beyond 52 may not add to the amount of leave they eventually get.

Service also survives restructures and sales. Under s 11, employees are treated as employed by one employer across related companies, and when a business or its assets change hands, the new owner inherits the accrued service and must not refuse long service leave that accrued before the change. If you buy a business, you buy its long service leave history, including the risk that a long-serving employee is close to the seven-year mark.

Grant leave when it is requested

Once an employee is entitled, the Act gives them real flexibility and you have limited room to refuse:

Single-day leave: An employee may request long service leave for any period of not less than one day (s 18). You must grant the request as soon as practicable unless you have reasonable business grounds for refusing it.
Directing leave: You may direct an employee to take long service leave at a specified time by giving at least 12 weeks' written notice (s 19).
Half pay: An employee may request leave for double the period at half pay, and you must grant that request unless you have reasonable business grounds to refuse (s 22).
Leave in advance: You can agree to an employee taking long service leave before they reach seven years (s 8). That period of leave does not generate further leave or payment in lieu, and if employment ends before the entitlement vests you can deduct what was already paid.
Public holidays and annual leave: Neither counts towards long service leave, so the leave is extended around them (s 7).

Pay the correct amount

The amount an employee is paid while on long service leave is not simply their current weekly wage, and the calculation protects long-serving employees whose arrangements have changed.

Ordinary pay is the pay the employee is entitled to on the day leave starts, calculated on their normal weekly hours at their ordinary time rate of pay (s 15). If no ordinary time rate is fixed, the rate is the greatest of the average weekly rate over the last 52 weeks, the last 260 weeks (five years), or the whole period of continuous employment.

The same greatest of approach protects employees whose hours have changed. Under s 16, if an employee's fixed weekly hours changed at any time in the 104 weeks before the leave starts, or no fixed hours exist, their normal weekly hours are the greatest of the average over the last 52 weeks, the last 260 weeks, or the whole period. Take an employee who worked 38 hours a week for seven years and dropped to 19 hours a week six months before taking leave. They cannot be paid on the basis of 19 hours, because the longer averages reflect the years of full-time work. The calculation uses the hours actually worked, with paid leave counted as hours worked and unpaid leave weeks excluded from the averaging period.

Payment timing is flexible but agreed in advance: you must pay as agreed before the leave starts, or, if there is no agreement, in full when the leave starts or at the same times and in the same manner as if the employee were still working (s 20). If the employee's ordinary pay increases while they are on leave, the increase must be passed on from the date of the increase (s 21).

Pay out the balance when employment ends

When employment ends before an employee has taken all of their long service leave, the full remaining balance becomes payable on the day employment ends (s 9). This applies regardless of who ended the employment or why. The employee is treated as having started long service leave on their final day, and the full entitlement, calculated as at that day, is due and payable that day. Failing to pay is a continuing offence that accrues a penalty for each day the payment is outstanding. If the employee dies before taking the leave, the same payment obligation runs to their personal representative (s 10).

Keep long service leave records

The LSL Act treats records as a separate, serious duty (s 37). You must keep a long service leave record for each employee during the whole period of their continuous employment, and for at least seven years after they stop working for you. The record must be able to be produced to an authorised officer on request, it must not contain false or misleading statements or material omissions, and you must give the employee (or their personal representative) a copy when asked. Proceedings for these record offences can be started up to six years after the offence, longer than the usual limitation period.

Handle agreements and payments in lieu carefully

Two drafting-related obligations are easy to overlook:

Disclosure before agreement changes: At least seven days before you enter into an employment agreement that would modify or remove an employee's long service leave entitlements, you must notify the employee in writing and state exactly which entitlements the agreement changes (s 50).
No payments in lieu: You must not give an employee a payment in lieu of long service leave, or any part of it, except where permitted, for example on termination (s 34). The prohibition runs both ways: an employee must not accept one either.

The consequences of getting it wrong

The LSL Act is enforced through criminal offences, not just civil claims, and the wage theft regime adds a much heavier layer:

Standard penalties: Most offences under the Act carry 12 penalty units for an individual and 60 penalty units for a body corporate. Several, including failing to pay on termination and taking adverse action, are continuing offences, so the penalty accrues for each day the breach continues.
Current value: The Victorian penalty unit value is $203.51 from 1 July 2025 to 30 June 2026. That makes 12 penalty units worth about $2,442 and 60 penalty units about $12,211, before any per-day multiplication.
Adverse action: You must not take adverse action against an employee because they are entitled to long service leave, because they seek to take it, or because they make an enquiry about their entitlements (s 36).
Wage theft: Since 1 July 2021, dishonestly withholding employee entitlements, including long service leave, has been a criminal offence under the Wage Theft Act 2020. An individual faces up to 10 years' imprisonment, and a company a fine of up to 6,000 penalty units, about $1.22 million at the current unit value. The employee's consent to a lesser arrangement is no defence where it drops the entitlement below the minimum the law requires.
Enforcement: Wage Inspectorate Victoria investigates and prosecutes wage theft and enforces the LSL Act. Authorised officers can require production of records, and disputes over entitlements can end up in the Industrial Division of the Magistrates' Court.

A compliance checklist for your business

Run through these checks to confirm your business is meeting its obligations under the LSL Act:

Scope: Confirm which workers are employees in scope, and review any contractor arrangement that looks like employment.
Service records: Record every employee's start date and monitor continuous service, including service inherited through a business purchase or restructure.
Unpaid leave: Flag any unpaid leave beyond 52 weeks, and get a written agreement before it starts if the whole period is to count towards service.
Payroll: Check that calculations use the greatest of the three averages where an employee's hours changed in the 104 weeks before leave, and set payment timing by agreement before leave starts.
Terminations: Pay the full long service leave balance on the employee's final day, whatever the reason for the end of employment.
Records: Keep records for at least seven years after employment ends, and respond promptly to employee requests for copies.
Agreements: If a new agreement touches long service leave, give the written notice at least seven days in advance, and never make a payment in lieu.
Decisions: Document the reasonable business grounds whenever you refuse a leave request or a half-pay request.

Where a lawyer can help

Long service leave questions usually become legal questions when the service history is complicated or the amounts are large:

Calculation disputes: Entitlements spanning parental leave, unpaid leave, related companies and business transfers are easy to miscompute, and the cost of getting it wrong includes per-day penalties.
Business purchases: A buyer should review the seller's long service leave records as part of due diligence, because the accrued service and the liability to honour it transfer with the business.
Agreement drafting: Employment contracts and policies that touch long service leave must comply with the disclosure obligations in s 50, and a lawyer can draft so the Act is not inadvertently modified.
Regulator contact: If Wage Inspectorate Victoria contacts you about a complaint or an inspection, early advice on what to produce and say protects your position, including in a prosecution.

Start with a service audit

The duty Victorian employers most often miss is tracking continuous service. Because service survives parental leave, moves between related companies and business sales, many employers only discover an employee has passed the seven-year mark when the employee asks for leave or resigns. By then the arrears, and the record problems, are real. Start this week by pulling the records of every employee who started more than five years ago, confirming their true start date and any service inherited from a previous owner, and checking whether their hours changed in the last 104 weeks. If anything is unclear, have the entitlement calculated before the employee asks, not after.