NSW long service leave: A timely reset on “getting it right”

Long service leave (LSL) has long been one of the most complex employment entitlements in New South Wales. Governed by legislation dating back to 1955 and widely regarded as Australia’s oldest long service leave statute, it presents ongoing challenges for employers and payroll teams operating in a workforce that looks very different from the one the Act was originally written for. As workplaces have evolved, so too have pay structures, work patterns, and employment arrangements, often leaving LSL calculations exposed to inconsistency and error.

Why are underpayments so common

This complexity was openly acknowledged during a recent webinar, where Georgia Potter Butler, Director of the Industrial Relations Inspectorate at the NSW Premier’s Department, noted that they are yet to audit an organisation without identifying some level of LSL underpayment. Importantly, her message was not one of blame. Rather, it was a recognition that the Act is difficult to apply in practice and that payroll systems do not always reflect its nuances. The release of updated guidance is intended to respond to that reality, supporting a more consistent and practical approach to LSL compliance.

Updated guidance from 1 March 2026

Education sits at the heart of the regulator’s role, with a strong focus on supporting employers, payroll teams, and advisers to confidently administer long service leave. With this objective in mind, NSW Industrial Relations has released updated guidance effective from 1 March 2026. While the Long Service Leave Act 1955 (NSW) itself has not changed, the guidance is designed to assist modern workplaces to interpret and apply the Act more consistently and in a way that reflects contemporary employment practices.

The guidance provides a step‑by‑step approach to calculating long service leave accruals and payments and addresses many of the areas that have historically caused confusion. This includes how service is calculated, particularly for casual employees, what counts as service and what does not, how entitlements should be calculated for temporary and variable‑hours workers, and when to apply ordinary remuneration versus average weekly wages. It also provides clarity on the treatment of bonuses and other variable payments, as well as accruals after 15 years of service.

Implications for employers and payroll teams

In practical terms, the guidance is intended to promote greater consistency in how LSL is accrued and paid, provide practical examples for complex scenarios, and support employers, payroll professionals, and advisers who are genuinely trying to do the right thing. As was noted during the webinar, the guidance exists because “everyone is doing it differently”, and often incorrectly, despite best intentions.

The guidance also reinforces several broader themes that many employers will recognise. Payroll systems are not a silver bullet, and default system configurations often do not align with NSW‑specific LSL rules. Manual intervention is frequently unavoidable, particularly where hours, pay, or service have varied over time. Encouragingly, the regulator’s focus is clearly on education, consistency, and facilitation, rather than punishment for historical misunderstandings, particularly where employers are acting in good faith.

Importantly, the guidance is designed to help organisations move forward with confidence, rather than to re‑litigate the past. For employers, this presents an opportunity to revisit current methodologies, identify higher‑risk cohorts, and ensure assumptions and manual adjustments are clearly documented. Embedding the guidance into internal processes for LSL queries, audits, and terminations can help reduce future risk and improve consistency across the organisation.

The good news is that there is now a practical and authoritative resource to lean on. For anyone responsible for managing, calculating, or reviewing long service leave in NSW, the NSW Government’s guidance is now an essential reference point. It provides a clearer framework for navigating common problem areas such as service recognition, averaging, and entitlement calculations.

Stepping back, the regulator’s message is straightforward: LSL compliance has never been simple, and the goal is consistency and confidence, not catching out employers who are genuinely trying to do the right thing. The release of this guidance recognises that complexity and represents a genuine effort to support a fairer and more consistent application of the law.

If nothing else, it is a timely reminder that when it comes to long service leave in NSW, clarity, documentation, and a defensible methodology matter more than blind reliance on systems.

How BDO can help

From a practical perspective, this is where trusted advisers can add value by helping employers interpret the guidance, test existing methodologies, and apply a defensible approach to complex or higher‑risk scenarios. At BDO, our focus is on supporting clients to navigate long service leave obligations with clarity and confidence, aligned to regulator expectations and grounded in practical application.

The guidance highlights that LSL underpayments most commonly arise where employee arrangements are less straightforward. Employers with employees falling within higher‑risk cohorts should be particularly alert to the potential for error, especially where calculations have relied heavily on system defaults or legacy methodologies. These higher‑risk cohorts and scenarios include:

• Casual employees, particularly long‑term casuals
• Employees with fluctuating part‑time hours
• Employees receiving allowances, bonuses, commissions, or other variable payments
• Employees with periods of unpaid leave and the resulting impact on service
• Employees who have acted in higher duties for extended periods
• Employees who resign and may be entitled to pro‑rata long service leave
• Employees on workers compensation
• Employees who transfer between jurisdictions.

Where one or more of these features exist, LSL calculations often warrant closer review, clearer assumptions, and, in many cases, manual intervention. Support at this stage may include validating whether historical approaches have been applied correctly, as well as ensuring that future accruals and payments are calculated consistently, well‑documented, and defensible if reviewed.

To learn more and confirm that your NSW long service leave approach aligns to the updated guidance, please contact BDO’s payroll advisory team.

Note: BDO is not a law firm and does not provide legal advice. All matters of legal interpretation, and all matters requiring legal advice, will be advised and signed off by your legal advisors. We will complete our work based on any legal advice provided.
 

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© State of New South Wales 2026. All rights reserved. For more information, please visit https://www.nsw.gov.au/departments-and-agencies/premiers-department/nsw-industrial-relations/information-access.