Employers are required to review and reassess their contracts for casual employees before 27 September 2021.
Review required for casual labour contracts
It is a common misconception that casual employees are not entitled to any personal, annual and long service leave based on the premise that they receive a loading on hourly rates as compensation.
Following the landmark decision handed down by the High Court of Australia in the Workpac Pty Ltd v Rossato case and statutory changes to the Fair Work Act 2009 (FWA) in March 2021 with retrospective effect, employers are required to review and reassess their casual labour contracts. Particularly where there is regular and systematic work provided and the employee’s contract has a commitment to future work.
Leave entitlements can be a minefield for employers, especially when relating to casual employees. To help you understand the potential risks and obligations, we have set out below the current position for annual leave and long service leave.
When is a casual employee entitled to annual leave?
An employee’s entitlement to annual leave is prescribed in the National Employment Standards (NES) within the FWA. In general terms, a casual employee is not entitled to annual leave and generally other types of leave, i.e. personal leave etc. On 27 March 2021, the FWA was amended to include the definition of casual employment. The amendments have retrospective effect and provide a 6 month transition period.
A casual employee is defined as someone who has accepted a job offer from an employer knowing that there is no firm advance commitment to ongoing work with an agreed pattern of work.
A casual employee will be classified as permanent where there is a ‘casual conversion’. This will apply where the employee has completed 12 months of service. There is an exemption for small business where they employee less than 15 employees at a particular time.
Who is entitled to long service leave?
Long service leave in Australia is covered under Australian State legislation. In most instances, an employee will be covered by the Long Service Leave Act (LSL) in the applicable State where they work, although various industry sectors have separate Acts, e.g. construction and cleaning industries.
All State LSL Acts provide that full time, part time, casual, seasonal and fixed term employees are entitled to long service leave. The entitlement is subject to an important provision that their employment is ‘continuous’, i.e. no breaks in service. The contentious issue for casual employees is whether their services meets the definition of continuous employment. This definition varies between the LSL Acts although all contain the same principles with differing periods of time.
Continuous means there must not be an absence of more than 12 weeks (except for NSW, SA, WA and NT limited to 2 months) between any two instances of employment, unless:
the employee and the employer agree before the start of the absence
the absence is in accordance with the terms of the engagement
the absence is caused by seasonal factors
the employee has been employed on a regular and systematic basis and has a reasonable expectation of being re-engaged.
The key issue for employers to address is whether their current contractual arrangements with their casual staff provide for regular, certain, continuing, constant and predictable work.
By comparison, casual employment that would not be continuous is one where the work allocated to the employee is unpredictable, irregular, intermittent and not pre-allocated.
What should employers do?
Conduct regular reviews of existing casuals to determine whether they have continuous employment and are entitled to long service leave. Remove casuals from employment lists when they are no longer needed (offboarding) and document this in writing
Review onboarding processes to firm up the casual employment arrangement including documenting in the written employment contracts. For example, avoid where practicable any commitment to future work, provide the choice to refuse work, the ability for changes or fluctuation in the days and hours of work and termination at short or on no notice
Ensure payroll software systems accurately calculate and record the accrual, what long service leave has been taken by employees and the amount they have been paid during the leave period
Ensure the financial reports reflect long service leave liabilities for long-standing casual employees. Consider including payment of future provisions in cashflow forecasts
Upon termination of a casual employee, ensure the full amount of the long service leave entitlement is paid out on the final day of employment
Employers must keep accurate records during the entire period of employment, retain these for at least seven years after the employment ceases and must be kept in the form prescribed by the regulations made under the applicable LSL Acts.
An employer must not refuse a request from an employee to provide their Long Service Leave record and criminal penalties may apply.
Calculation of entitlement
Casual and seasonal employees accrue long service leave in the same way as part-time and full-time employees.
An employee is entitled to be paid their long service leave based on their ‘ordinary pay’, ie: actual pay received for working his or her normal weekly hours and ordinary time rate of pay at the time the leave is taken or is to be paid out on termination.
The long service leave entitlement for casuals who do not have normal weekly hours, is calculated by averaging the hours of work.
If the casual does not have an ‘ordinary rate’, perhaps due to piece work rates, then averaging requirements will also apply. The calculation of rates vary between the States. For example, in Victoria the rate will be the greatest of the average earned over either the last 52 weeks, 260 weeks or entire period of employment.
What action is required before 27 September 2021?
Employers (except small business) are required to review their current contractual arrangements with casual employees and:
How can SW assist?
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