Calculate the correct amount to withhold

When making a payment of unused long service leave on termination of employment you need to calculate certain payment components that have different withholding requirements. These components are:

• pre-16 August 1978
• pre-18 August 1993 (that is, for the period 16 August 1978 to 17 August 1993)
• post-17 August 1993.

To calculate the amount to withhold, follow the three-step process:

• Step 1 – work out the amount of long service leave accrued in each period
• Step 2 – work out the payment amount attributable to each period
• Step 3 – calculate the amounts to be withheld.

Step 1 – Work out the amount of long service leave accrued in each period

Use the following formula to work out the amount of long service leave accrued in each period:

Days of long service leave accrued during long service leave employment period

×

Days in relevant period ÷ Days in long service leave employment period

The relevant period can mean the:

• pre-16 August 1978 period
• pre-18 August 1993 period (that is, for the period 16 August 1978 to 17 August 1993)
• post-17 August 1993 period (as applicable).

You may need to know how to treat:

• fractions of days
• an employee who has used long service leave
• long service leave taken at less than full pay.

Fractions of days

The calculation at step 1 can result in fractions of days being applicable to the relevant period. If the employee:

• has not accrued any long service leave in the pre-16 August 1978 period, but has accrued long service leave during the pre-18 August 1993 and the post-17 August 1993 periods, treat the fraction as having accrued during the pre-18 August 1993 period
• has accrued long service leave in all three periods, treat the fraction as having accrued during the pre-16 August 1978 period.

When an employee has used long service leave

If an employee has used long service leave while employed, you need to reduce the number of days of long service leave in a particular period by the number of days used in that period.

There may be occasions when the number of days of long service used in a particular period exceeds the number of days that were accrued in the same period. If this is the case, the following table provides instructions on how to apply these excess days.

Table 4: How to apply excess days

If there are excess days in the period:	Apply the excess days as follows:	If, after applying the excess days as in column 2 any excess days remain, apply the remaining days as follows:
Pre-18 August 1993	Subtract the excess days from the unused days in the post-17 August 1993 period	Subtract the excess days from the unused days in the pre-16 August 1978 period
Post-17 August 1993	Subtract the excess days from the unused days in the pre-18 August 1993 period	Subtract the excess days from the unused days in the pre-16 August 1978 period

The number of days that are remaining after applying this table is the unused long service leave days applicable for each period.

Long service leave taken at less than full pay

If an employee has taken long service leave at less than full pay, the number of days of long service that are used is calculated as follows:

Actual days of long service leave

×

Rate of pay at which leave was actually taken ÷ Rate of pay to which the employee was entitled to when taking leave

Step 2 – Work out the payment amount attributable to each period

Use the following formula to work out the payment amount attributable to each period:

Amount of the payment

×

Unused long service leave days in the relevant period ÷ Total unused long service leave days

Where:

• unused long service leave days in the relevant period means the number of unused days of long service leave in the pre-18 August 1993 period, the post-17 August 1993 period, or the pre-16 August 1978 period (as applicable)
• total unused long service leave days means the total number of unused days of long service leave in the in the long service leave employment period for the payment.

Part-time and full-time service periods

Situations may arise where a part-time employee has moved onto full-time service during their employment with you. When making a payment of unused long service leave on termination of employment, you will need to separate the employee's full-time and part-time service periods. The long service leave entitlement for each period is then calculated separately.

Step 3 – Calculate the amounts to be withheld

How you work out the amount to withhold depends on whether your employee is leaving because of genuine redundancy, invalidity or through an early retirement scheme, or for another reason.

Leaving employment because of genuine redundancy, invalidity or an early retirement scheme

Once the component values have been calculated (see step 2), specific withholding rates are applied to each, as shown in the following table.

Table 5: Withholding rates

Component	Withholding rate
Pre-16 August 1978	5% of total at marginal rate, disregarding any cents
Post-15 August 1978	32%, disregarding any cents

Leaving employment for other reason

Once the component values have been calculated (see step 2), specific withholding rates are applied to each, as shown in the following table.

Table 6: Withholding rates

Component	Withholding rate
Pre-16 August 1978	5% of total at marginal rate, disregarding any cents
Pre-18 August 1993 (for example 16 August 1978 to 17 August 1993)	32%, disregarding any cents
Post-17 August 1993	If this unused long service leave component (and unused annual leave) is less than $300, withhold 32% of the total amount, disregarding any cents. If this unused long service leave component (and unused annual leave) is $300 or more use the following steps for the marginal rates calculation: using the relevant PAYG withholding tax tables, work out the amount to withhold from the employee's normal gross earnings for a regular pay period (for example, weekly, fortnightly or monthly) add 5% of the pre-16 August 1978 component to the post-17 August 1993 component divide the amount at step 2. by the number of regular periods in a financial year (52 weeks, 26 fortnights or 12 months) disregard any cents in the result add the amount at step 4. to the normal gross earnings for a single pay period use the regular PAYG withholding tax table used at step 1. to work out the amount to withhold from the amount calculated at step 5 subtract the withholding amount calculated at step 1. from the amount calculated at step 6 multiply the amount calculated at step 7. by the number of normal pay periods in 12 months to obtain the amount to withhold from the unused long service leave amount.