Chapter 3
Portability of long service leave
Introduction
3.1
Portability of entitlements allows workers to take accrued leave with
them when they change jobs. Leave entitlements are a financial liability on
businesses, and entitlements such as annual leave are often paid out when a
person leaves an employer, rather than passed on to the next employer -
although there are exceptions.[1]
3.2
LSL is generally not portable because it is designed to be accessed
after a long period of continuous employment with a single employer. If a
worker leaves an employer before they reach the threshold period of time, in
most cases they lose any accrued LSL and must start again. Making LSL portable would
allow workers to take any accrued LSL with them when they move jobs, rather than
having to start again.
3.3
The committee found that submitters and witnesses to this inquiry are
deeply divided on the issue of portability of LSL. Some firmly believe that LSL
should be portable for all workers, whilst others are of the view that
portability should not be extended under any circumstances. Reasons vary, and
include issues of equity, cost and the traditional purpose of LSL.
3.4
In a few cases, submitters suggested portability should only exist where
necessary, such as in particular industries whose nature tends to preclude
workers from ongoing employment with a single employer for long periods of time,
despite working in the industry for a long time.[2]
3.5
Arguments for extending portability of the LSL scheme are largely based
on the right to equal access to the full range of employment benefits,
including LSL. Some submitters see no reason why any worker should miss out
because of their particular working arrangement, and believe it can only
benefit Australia for workers to take regular, paid breaks after long periods
of work.
3.6
The ACTU argues:
Long service leave is a basic workplace entitlement. It has
existed in this country for over 150 years and in fact predates federation.
However, despite long service leave being a well-established community
standard, fundamental changes to the nature of work have created structural
barriers that prevent equal access to it.[3]
3.7
The ACTU further argues:
It is our strong submission that all sectors, industries and
occupations in the contemporary labour market will benefit from the creation of
a generalised entitlement to portable long service leave. We believe it is a
clear role of government to facilitate the introduction of a generalised system
of portable LSL entitlements. A national portable LSL standard should build on
and supplement a generalised national LSL scheme.[4]
3.8
The committee received evidence in support of portability of LSL
entitlements that traversed a range of issues, as well as arguments against
extending portability. Most pronounced were issues raised about the number of
Australians in insecure work and about the extent and nature of labour market
mobility. In addition, ideology and cost were raised. These will be discussed
in this chapter.
Insecure work
3.9
Insecure work is a term used by some submitters to describe work that
does not offer reliability to a worker in areas such as hours, pay and
conditions. The term connotes a level of uncertainty in employment and income,
and a lack of worker control over these things.
3.10
In its submission, the ACTU suggests that insecure workers 'include
those experiencing working time insecurity due to irregular, excessive or
insufficient hours and/or fluctuating pay and income,' and indicates that
permanent employees may also experience insecure work if they engage in
excessive hours.[5]
3.11
Excessive or insufficient hours are considered to contribute to work
insecurity because they prevent 'workers from exercising control over their
working hours, with flow on effects' on areas of their life such as work/life
balance, family and social life.[6]
Thus, insecure work involves work in which the worker has little control over core
elements such as their working hours or income.
3.12
The ACTU commissioned an independent inquiry into insecure work in 2011 and
its report was published in 2012 - Lives on Hold: Unlocking the Potential of
Australia's Workforce (Lives on Hold report). The ACTU states that
this is 'the most extensive assessment of insecure work in Australia to date,'
and noted the inquiry defined insecure work as:
...poor quality work that provides workers with little economic
security and little control over their working lives. The characteristics of
these jobs can include unpredictable and fluctuating pay; inferior rights and
entitlements; limited or no access to paid leave; irregular and unpredictable
working hours; a lack of security and/or uncertainty over the length of a job;
and a lack of any say at work over wages, conditions and work organisation.
These challenges are most often associated with non-permanent forms of employment
like casual work, fixed-term contracts, independent contracting and labour hire
– all of which are growing.[7]
3.13
Unsurprisingly, a number of submitters looked to this definition for
guidance in discussing the matter, and expressed concern about the levels of
insecure work in Australia, pointing out that workers in some types of
employment, including casual or non-ongoing employment, routinely miss out on
LSL entitlements.
3.14
The Australian Services Union referred specifically to the Lives on Hold
report, arguing that a huge percentage of the workforce in Australia is not
engaged in permanent full-time work, and thus, is unable to access LSL:
In the report Lives on Hold: Unlocking the potential of
Australia's workforce, it was found that approximately 40% of workers were in
employment other than permanent full-time, i.e. casual, part time, contract, or
other non-standard employment arrangements.
These changed employment conditions have clearly contributed
to the decrease in many workers being able to access long service leave. As
stated by Dave Oliver, ACTU in the Victorian Government's inquiry into
portability of long service leave entitlements 'we are now seeing the emergence
of two classes of worker out there: you are either a permanent employee and you
have security and a whole range of benefits, or you are transient employee who
has none'.[8]
3.15
The Queensland Nurses Union (QNU) discussed insecure working
arrangements, describing a situation where there are 'haves' and 'have nots'
with respect to secure employment arrangements:
The new divide in the Australian workforce is between those
who are in full-time permanent employment and those who work on the periphery
in various insecure arrangements of casual, contract or labour hire. Many do
not know the hours they will be required to work from week to week, often
juggle multiple jobs and are frequently in low paid positions in restaurants,
catering or retail.[9]
3.16
Similarly, the HSU discussed the growing prevalence of insecure work in
the health and community services sectors which involves employment modes that
circumvent LSL provisions:
Anecdotal evidence emerging from NDIS trial sites is that
employees are being employed as casuals or on possibly illegitimate zero or
minimum hours contracts as part-time employees, thereby avoiding casual
loadings and minimising paid leave entitlements. The HSU is also hearing
increasing reports that workers are lucky to be engaged in even a part-time
capacity. Compounding this challenge is the fact that while government funding
for health and community services programs is growing, it is failing to keep
pace with demand. Our members are finding themselves bearing the consequences
of this collision between service expansion and rationed funding by means of
lower real wages, increasing casualization [sic] and narrowing career pathways.
In short, these changes are increasing the level of insecure work.[10]
3.17
The United Services Union noted that the notion of insecure work is
viewed very differently from different perspectives:
Employers and employer lobby groups often describe insecure
employment as 'flexible work practices' but it is the employer, not the
employee which gains the most from such 'flexible' practices. This needs to be
addressed by the Committee's report as the employers preferred 'flexibility'
often results in the employees' insecure employment.[11]
3.18
This evidence suggests a major disconnect between the key groups of
worker and employer representatives, in terms of understanding and agreement
about what makes work insecure, and how different types of working arrangements
affect the individual worker.
3.19
In addition to general concerns about the growing incidence of insecure
work, some submitters pointed out that women are more likely to be affected for
reasons such as maternity leave and other carer's duties, and therefore extending
portability of is especially important to women in the workforce. For example,
the ASU notes:
The recent 2015 report The desirability of extending
portable long service leave found women are particularly likely to benefit
from a portable long service leave scheme. This is because women are
over-represented in casual or part-time employment without long service leave
benefits when compared to men, and are also less likely to be employed with one
employer for 10 years or more.[12]
3.20
In discussing the effects of insecure work on women, the ANMF echoes this
evidence, arguing that various family responsibilities disproportionately fall
to women, making them particularly vulnerable in the workforce, and therefore
increasing the importance of extending portability of LSL to capture this group
of workers:
Demographically, women are now as likely to work as men, and
with an aging population there is an increasing focus on caring for older
relatives as well as child raising (both of these responsibilities fall
disproportionately to women at different stages of their working lives, and in
terms of older relatives, disproportionately to those with nursing
qualifications within families). Indeed, with an aging workforce and
governments increasingly under revenue pressure, all workers, including nurses
and midwives, are going to be increasingly required to work beyond the age of
60 or even 65 years of age.
All of these factors make entitlement and access to long
service leave even more important today – whether to give workers a break to
re-train, to give them some added income while searching for new jobs, to
recharge in the middle of a long working life or to enable them to provide respite
or nursing care for loved ones at crucial times.[13]
3.21
The ANMF notes the prevalence of women in the nursing and midwifery
sector:
Nurses and midwives are predominantly women, currently making
up 90% of the nursing workforce. As almost 48% are under the age of 45, it can
be expected many will interrupt their working life to have children, a
situation that can arise several times during their career. In addition to
potential breaks in employment, hours and patterns of work may vary at
different points in time depending on family circumstances.[14]
3.22
While not expressing a view about women in particular, the QNU notes the
prevalence of women in nursing and midwifery and the proportion of part-time
workers in the sector:
Nursing and midwifery is a distinctly feminised workforce
(around 90% are women) with a high proportion of part-time workers (around 60%
of Enrolled Nurses and 45% of Registered Nurses) (Australian Institute of
Health and Welfare, 2013).[15]
3.23
Jobwatch also acknowledges that there are certain industries or sectors
with a predominance of female employees, and argues that the advantages of a
portable LSL scheme, amongst other things can only serve to be beneficial to
women. In considering the objects of portable LSL schemes, Jobwatch submits
that advantages of portable LSL include that it:
Strengthens female workforce participation by supporting
women to return to the workforce after leaving employment for child rearing
purposes.[16]
3.24
In discussing the public sector, the CPSU noted:
Mobility has consistently been higher for women than for men.
During 2014–15, the mobility rate was 1.8 per cent for women and 1.3 per cent
for men (up from 1.1% and 1.0% respectively during 2013–14).
3.25
Thus, it is clear that women form a particular group of worker that can
be considered vulnerable to insecure work, and for whom a portable LSL scheme
would be extremely beneficial.
3.26
In addition to concerns expressed about the existence of insecure work
and how it precludes some workers from accruing and accessing LSL, some
submitters drew the committee's attention to the numbers of people in insecure
work – both generally and in particular industries - suggesting prevalence of
these arrangements is on the rise in Australia.
3.27
For example, the ACTU argues that 'the number of Australians in insecure
work has risen dramatically in recent decades'[17]
and supports the extension of portability of LSL so that all workers receive
equal entitlements to LSL:
The ACTU supports the establishment of a national long
service leave ('LSL') standard and a national long service leave portability
scheme. As we discuss below, a national portable scheme is necessary to ensure
equal access to long service leave, particularly in the face of the dramatic
increase in the number of Australians in insecure work.[18]
3.28
Although its submission focusses largely on labour hire employment, the
AMWU provides the following outline of the number of Australians in insecure
work:
There are millions of Australians currently engaged in
insecure employment. These include 2.3 million casual employees, 125,000 labour
hire workers, 356,000 fixed term contract workers and 439,000 independent
contractors that have only one contract. Together, these 3.22 million
Australian workers make up 28% of all employed persons in August 2014.[19]
3.29
In spite of evidence provided to the committee about the nature of
insecure work, not all submitters accept the term 'insecure work' as being a
valid description for workers who are not engaged in permanent work with
regular hours.
3.30
Some submitters argue that as there is no standard definition or legal
framework supporting the term, 'insecure work' is not an accurate or useful way
of describing the various working arrangements discussed above.
3.31
For example, in addressing this inquiry's Terms of Reference, ACCI
sought to qualify the use of the term:
It is also noted that the Inquiry is seeking information about
the number of Australians in 'insecure work'. It is important to recognise from
the outset that this is not a term defined within law and a person's perception
regarding the level of security in their work is subjective.[20]
3.32
During a hearing on 5 February 2016 in Canberra, the committee asked the
Department of Employment whether it recognised the term 'insecure work' or
whether it was considered a useful concept. The Department responded:
We use the term following the ABS. We have definitions of
casual work, part-time work, full time work and other forms of employment that
go to the nature of the employment relationship. There is not actually an
employment contract called 'insecure work'. We go by what the ABS uses for its
definitions.[21]
3.33
In discussing whether it is useful concept, the Department suggested:
Certainly some people use the concept as a level of
abstraction higher than what exists in the ABS terminology. It is not a term
that we would think points to a particular legal aspect of a contract.[22]
3.34
Objection or resistance to the use of the term 'insecure work' because
of the lack of a standard definition is clearly a key issue for some submitters
in the debate about LSL portability.
3.35
The committee notes that the ACTU acknowledges that a standard indicator
for insecure work would be useful:
We consider there would be some value in the ABS
investigating how it might develop an insecure work indicator. Such an
indicator could show the percentage of all workers who are in insecure work
using objective measures...[23]
3.36
In light of the evidence and arguments in relation to insecure work, it
appears that achieving consensus on this issue could be assisted by the ABS developing
a standard definition that could be used to assess whether a worker is in
insecure work. Development of a definition should be approached with extensive
consultation across industries, employer groups and unions.
Labour market mobility
3.37
A key pillar of the argument for extending LSL portability to enable
workers access to it is that labour market mobility has changed over time and
fewer people are working for long periods with a single employer. Conversely,
more people are changing jobs more frequently, work is intensifying and people
are working for longer as the population ages.
3.38
The ACTU offers the following clarification about what labour market
mobility encompasses:
The term 'Labour market mobility' or 'labour mobility'
generally refers to the movement of workers within the labour market, whether
it be between jobs or occupations or between geographical
regions.[24]
3.39
However, views about labour market mobility are distinctly split between
those submitters who believe that the workforce has changed - and continues to
change - hugely, leading to increased insecurity and casualization, and those
submitters who do not believe that this has occurred, or that it has not had a
significant effect on the LSL.
3.40
While many submitters argue that the dynamics of the Australian
workforce is changing with an increase of mobility between employers, a number
of submitters argue that in fact, the most recent statistics provided by the
ABS does not demonstrate that this is the case. These views will be explored in
this section.
The extent of labour market
mobility
3.41
Building on concerns about the growing incidence of insecure work, however
defined, some submitters have also argued that Australia's workforce is
becoming increasingly mobile and that this is not to the benefit of workers.
Increased labour market mobility means - amongst other things - that more
workers are deprived of the opportunity to accumulate and access LSL.
3.42
In evidence to the committee at a public hearing, United Voice opined:
The current long service leave system fails a large part of
the work force that work in volatile, insecure work where labour mobility is at
its highest. This growing section of the workforce is denied their long service
leave entitlement.[25]
3.43
The ASU argues that the Australian workforce is dramatically changing,
with an increase in labour market mobility, intensification of work and longer
working lives. These things, it argues, means that the approach to LSL should
also change to enable more workers to be able to access LSL.
The dynamics of the Australian workforce is changing. For
most Australian workers, the reality is that their working lives will be
characterised by regular mobility among employers both within and between
industries, as well as by longer working hours and longer working lives.
Labour mobility rates amongst Australian workers are high. In
2013, 22 per cent of employees had been with their current employer for less
than 12 months, whilst a further 37% per cent of all employees had been with
their current employer for less than 5 years.
Whilst labour mobility can provide many positive effects, a
major implication of it, is the ability to accrue and access long service
leave, as the standard qualifying period is usually 10 years (with prorate
entitlements after a lesser period, typically 7 years).
The case for a national portable long service leave scheme is
gaining momentum with many acknowledging the fact that workers are no longer
staying in the same job with the same company for their entire working lives. [26]
3.44
In its submission, the ACTU discusses casualization of the workforce and
states that '[l]abour mobility and work insecurity have the potential to
undermine workers' potential to accrue long service leave'.
3.45
The ACTU also refers to the findings of the Lives on Hold report,
arguing that casualization and the growth of non-permanent forms of employment
is taking place 'under the radar'.[27]
It provides the following evidence to support its concerns about growing
casualization:
The number of casual employees in Australia, for example,
almost tripled between 1982 and 1999, rising from just below 700,000 to almost
2 million. Casual density, the proportion of casual jobs out of all jobs, grew
from 15.8 percent in 1984 to a peak of 27 percent in 2000-2003, before becoming
relatively stable at about 24 per cent between 2005 to 2014. This relative
stabilisation was thought to be explained partly by the growth of other forms
of insecure work, such as fixed-term contracts, labour hire and independent
contracting, which have given employers other options for minimising costs and
shifting risks on to their employees. The latest ABS statistics, released in
November 2015, show that casual density has continued to increase again, rising
from 23.8% of all workers in August 2013 to 24.1% at August 2014.[28]
3.46
Further, the ACTU suggests that the 'rise in casual employment coincides
with an ongoing decline in the level of full-time permanent employment'.[29]
3.47
Another concern of the ACTU related to the growing incidence of casual
employment is the increased length of time people are spending in casual
employment:
According to the Australian Workplace Relations Study
('AWRS') of 2013-2014, the mean employee tenure for all employees is 5.76 years
and 5.62 years for part-time employees.19 A feature of the increased
casualisation of the workforce is that many workers are working as casual
employees on a long-term basis. Hence, casual employment tenure increased to
4.09 years as at the same date.[30]
3.48
This suggests that people sometimes remain in a cycle of casual
employment, unable to access different types of leave, including LSL. However,
it is important to note that this does not provide information about whether
people are remaining in casual employment by choice or for other reasons.
3.49
QAI, an organisation providing advocacy services to people with
disability, has given evidence in its submission about the challenges for
workers – both workers with a disability and their carers - who find themselves
on the treadmill of casual or part time work where they receive a lower level
of basic employment benefits, including leave. QAI makes the important point
about the way in which this type of work is devalued, and consistent with other
evidence provided during this inquiry, indicates that women workers are
disproportionately represented in casual and part time work:
There are some significant, ingrained problems associated
with part-time and casual work; it is highly precarious and insecure, with
limited rights and entitlements. Yet it is in part-time and casual work that
people with disability and their carers, and to a lesser but still significant
extent people who work for NGOs and NFP organisations, are overwhelmingly
concentrated. The concentration of female carers in part-time and casual work
has strengthened the gender divide within the labour market and the associated
significant gender wage disparity.
The vast majority of part-time and casual workers work in
precarious and insecure employment. The situation is particularly dire for
casual workers, who make up a significant portion of the Australian workforce. Casual workers generally lack basic employment
benefits such as leave entitlements and superannuation and are often barred
from accessing legal remedies in the event of an unfair termination or
redundancy. The payment of casual loading is insufficient compensation for the
associated loss of rights and security casual work entails.
Part-time workers, both individually and in the industries
they dominate, are undervalued. Part-time workers can be offered fewer
opportunities for career progression and promotion. This is particularly
inappropriate given that the rise in the incidence of casual working
arrangements has been largely driven by corporate demand, to enable businesses
the flexibility to respond cost-effectively to changes in market demand with
fluctuating workforce sizes. [31]
3.50
In considering casualisation of the workforce, the USU notes in
particular the lack of guarantee of pay or leave:
Casual employees receive no paid personal/carers leave or
annual leave (although in some states casuals are eligible for long service
leave), have no guarantee of regular hours, termination or redundancy pay. As
compensation for leave casuals are paid a loading under the Fair Work Act.
If the lack of paid leave is taken as a definition of casual
employment, according to the Australian Bureau of Statistics (ABS) 2,305,600 people out of a workforce of
9,585,100 could be defined as casuals...[32]
3.51
In contrast to these arguments, other submitters argue that in fact, the
Australian workforce has remained fairly stable and is not grossly changing to
one of insecure work and casualization. Some submitters argue that the notion
that labour market mobility is increasing is not borne out by the data.
3.52
In its submission, the department quoted ABS data as indicating the
stability of casual employment:
ABS data suggests that casual employment has remained steady
for around a decade at approximately 24 per cent. The ABS measures casual
employment as employment without leave entitlements.[33]
3.53
At the committee's public hearing, the department went on to note that
the rise of casual work is historical, and that it is 'now a stable feature of
the Australian employment market'.[34]
3.54
In contrast, the ACTU stated:
The issue of casualisation does not become less relevant
merely because the big bump of an increase took place several years ago. The
question we really ask about that is: is it good enough for us to say that 24
or 25 per cent – a quarter – of the working people today have no long service
leave? [35]
3.55
However, the department also notes that the true nature of labour
mobility is difficult to pin down:
Employees can change both occupation and industry, or just
occupation within an industry, or stay in the same occupation but change
industry. For example, 'industry' is based on what an employer does (a
construction firm or a mining firm), but occupation is based on a person’s
individual work (being an engineer in either of those industries).[36]
3.56
Further, the department noted data that suggested that 'the younger an
employee is, the more likely they are to change employers' and the 'propensity
to change jobs declines with age'. While this phenomenon was not explored, it
may be that it occurs for simple reasons such as there being more young people
engaged in casual employment during their student years.
3.57
The Productivity Commission discusses casual and part time work, and
concludes that 'the notion that people are increasingly switching employers and
jobs is not borne out by trends over the past two decades'.[37]
3.58
Some submitters suggested that casuals are entitled to LSL but that casual
loadings in any case, compensate for a lack of other entitlements, including
LSL. This issue was explored at the
committee's public hearing:
Casual loading does not, in many instances, compensate for
long service leave. In fact, under a number of the statutes, casuals are
recognised as qualifying for long service leave, and that is part of the mess.
It is whether or not those casuals can be considered to have undertaken
continuity of service.
These things are complicated.[38]
3.59
Job satisfaction is subjective and many people choose to pursue and
remain in casual and other mobile types of employment arrangements for a range
of reasons. Notwithstanding, the committee is concerned that many workers find
themselves experiencing a level of job mobility - and therefore insecurity - that
is not of their choosing, and that this effects their ability to accrue and
access LSL.
Particular industries
3.60
The Terms of Reference for this inquiry asked which sectors, industries
or occupations may or may not benefit from portable LSL schemes. This issue was
not explored in depth during the inquiry, however the committee notes some
examples provided by submitters who both support and argue against extending
portability in their particular sector.
3.61
For the purpose of this report, the committee has included information
about the healthcare sector, automotive industry, accommodation sector,
building and construction industry and mining industry.
Healthcare sector
3.62
Information from the healthcare sector was received by the committee,
and covered nursing and midwifery, as well as aged care. Interestingly, views
differed amongst the various representative groups about whether portability of
LSL should be extended, and a number of disparate concerns were raised.
3.63
In its submission, the QNU provides data on different sectors where
people work for longer or shorter periods with a single employer.[39]
The QNU concludes:
Within nursing and midwifery the private and aged care
sectors would benefit most from a portable LSL scheme. Nurses and midwives
working in the public sector have portability within Queensland Health, the
major employer. There is no recognition of prior service for the purposes of
long service leave between sectors.[40]
3.64
Similarly, the ANMF provides nursing workforce data that indicates
'almost half (48.3%) of all nurses and midwives work part time hours of less
than 35 hours per week with 11.2 percent working less than 20 hours per week.
The average hours worked overall is 33.6 hours per week'.[41]
3.65
This acknowledges an inequity between those health care workers who are
working in the public sector and those who are not and suggests that a
significant number of nurses and midwives are in insecure employment
arrangements. This is concerning as nurses and midwives are predominately
women, and women have already been identified in this report as being
particularly vulnerable to insecure work, and thus, less likely to be able to
access LSL.
3.66
Further, in the residential aged care sector, '72% of the direct care
workforce work part time hours; 18.7 are casual employees with only 9.5%
working full time'. In addition, around 'half nursing and care employees work
between (56.4%) 16 to 34 hours per week; 4% work less than 16 hours per week.
This data also shows that 10% of all direct care employees have more than one
job'. ABS data provided by ANMF indicates this is nearly double the level in
the general population.[42]
3.67
The ANMF supports portable LSL which would cover 'nurses, midwives and
assistants in nursing across the health industry, including public and private
acute health, public and private aged care and the community sector'.[43]
It prefers a defined benefit fund model (that will be discussed later in this
chapter), and opines that:
The ideal position for nurses, midwives and assistants in
nursing is a flexible, seamless health system in which moving employment
between employers can be achieved without losing entitlements or having to
‘cash them out’ when it is not the intention to either cease employment or to
take LSL at that point.[44]
3.68
The HSU based its argument for extending portability of LSL to the
healthcare sector on issues of equity, noting the importance of these workers
to the community, and the high labour market mobility in the sector which leads
to workers missing out on LSL. [45]
3.69
The HSU outlines specific benefits to the healthcare sector:
-
Improving worker retention in industries with high levels of
labour mobility. This has benefits for employers by increasing the overall
supply of skilled workers.
-
Providing the flexibility for workers to take time out of the
workforce to improve their skill through formal education and training or to
take on caring responsibilities.
-
Productivity gains as a result of workers being able to take a
sustained break from a long period of work.[46]
3.70
In direct contrast, the Aged Care Guild (the Guild) opposes extending
portability of LSL to its sector because it 'would become an immediate cost and
balance sheet issue for the most recent employer of an aged care worker, and is
counter intuitive to the notion of rewarding "long service"'[47]
3.71
The Guild argues that there is simply no need to extend portable LSL to
the residential aged care sector, and that the introduction of such a scheme
would place 'additional red-tape and cost burden on the aged care sector,'[48]
noting that the sector is already facing serious challenges.
3.72
The Guild provides information about the residential aged care
workforce, indicating that it is 'not precarious by nature' and that 'unlike
some other industries, the residential aged care workforce is not transient or
project-based, which means that the majority of employees are entitled to LSL'.[49]
It supports its argument with data provided from the Aged Care Workforce Census
and Survey conducted by the National Institute of Labour Studies.[50]
3.73
Finally, the Guild suggests a moderate approach, where a 'stable
financial and regulatory environment is essential if future community demand
for aged care services are to be met'.[51]
Automotive industry
3.74
The Victorian Automobile Chamber of Commerce (VACC)[52],
including the Tasmanian Automobile Chamber of Commerce (TACC) provided a
combined submission with several other automotive organisations – Motor
Trader's Association of NSW and Motor Trader's Association of Western
Australia (collectively, MTAs), and outlined industry concerns about
nationalising LSL and extending portability of LSL.
3.75
VACC points out that the automotive industry is largely made up of
small businesses with between one and 19 employees, with a much smaller
proportion of medium to large business, and the remainder operating as sole
traders in Victoria.[53]
3.76
VACC supports neither the nationalisation of LSL, or extending
portability of LSL, and the industry's concerns centre on the effects of additional
costs to businesses, especially small business:
Long service leave poses significant financial,
administrative and productivity costs on employers. The 2015 Automotive E-Scan
survey ranked labour costs as the fourth biggest issue affecting the automotive
industry in Australia.[54]
3.77
In considering extending portability of LSL, VACC also noted the real
risk of portability creating cash flow problems for some businesses,
particularly small businesses 'which deal with smaller sums and profit margins
than larger businesses'.[55]
In support of this argument, VACC noted that a Neilsen Report indicated that
the 'automotive industry is especially vulnerable to restrictions on cash flow
posed by the additional operating expenses of portable long service leave'.[56]
Construction industry
3.78
Portable long service leave in the construction industry recognises long
service in the industry, rather than loyalty to a single employer. In its
submission, the HIA concisely outlines the development and rationale for
portable LSL in the construction industry:
PLSL schemes were established to recognise the unique nature
of employment in the building and construction industry, whereby employees are
typically engaged on a project basis and move from employer to employer as one
project is completed and another starts.
The 2002 Cole Royal Commission identified the following key
factors that led to the introduction of the PLSL schemes in the construction
industry:
- The strategic nature of the industry;
- High union density and industrial strength;
- A well-established industry focus; and
- Patterns of employment in the industry.
Beginning with Tasmania in 1971, every state and territory
now has a portable long service leave scheme in place for certain workers in
the construction industry; the status quo is an acknowledged feature of the
industry. [57]
3.79
In noting the unique nature of the industry, HIA also points out
concerns about the way in which portable LSL operates, including the exposure
of employers when a worker who may have been with an employer for a relatively
short period of time, decides to take their LSL. HIA states that the impact of
this 'is not just productivity losses whilst that business backfills the worker
in question, but there are other on-costs as well'.[58]
3.80
Portable LSL in the construction industry is usually funded by either a
contribution from employers based on wages of the eligible employees, or via
project based levy collected at development application or building permit
stage.[59]
Master Builders Australia provides similar evidence in its submission.[60]
3.81
According to the HIA, 'the project levy based model is usually
less paperwork intensive
for small business
employers as it applies automatically. At the same time, project levies represent a direct additional cost on delivering construction and new housing'.[61]
HIA opposes the extension of the portable LSL scheme to the residential
building industry, stating:
These obligations are unrealistic for small business and
reflect the industrial and bargaining environment under which such agreements
were struck.[62]
Accommodation industry
3.82
The committee received evidence from submitters about the accommodation
industry.
3.83
The Australian Hotels Association (AHA) indicated that while the 'hotel
industry is significant employer' and 'some hotels are 'large-scale operations
with hundreds of employees that form part of national or international chains,
many AHA members are small, locally owned businesses serving their surrounding
communities'. Further, AHA pointed out that hotels are 'highly labour-intensive
businesses and as such are significantly impacted by cost increases relating to
employment'.[63]
3.84
Similarly, the Accommodation Association of Australia (AAA) suggested
that extending portability of the LSL scheme 'would have a negative cash-flow
effect on businesses and act as a disincentive to creating long-term careers
within a business,'[64]
and characterises the introduction of any new portability scheme for workers as
'another payroll tax on employers'.[65]
3.85
In its submission, the AAA discusses the importance of tourism to
Australia and its significant contribution to the economy, noting that the
accommodation industry is an important employer in Australia and encompasses a
variety of accommodation from major hotel and motel chains, to serviced
apartments and backpacker accommodation.[66]
3.86
The AAA does not support extending portable LSL to the sector arguing
that it would not benefit the accommodation sector[67]
and summarising its reasons in its submission, including:
Portable long-service leave schemes are unnecessary in the
accommodation industry because there is no evidence of employers failing to
meet long-service leave obligations, sufficient protection exists in law to
deal with recognition of long-service leave benefits on transmission of a
business, casual employees are paid a loading that fairly compensates for any
perceived insecurity and are recognised proportionately for long-service leave,
long-service leave is seen as an incentive to stay with a single employer and
the need to pay into a fund the amount of the starting balance for current
benefits already accrued would have a crippling impact on employers and could
result in job losses.[68]
Mining industry
3.87
The mining industry is exceptional in that, as with the building and
construction industry, it has its own portable LSL scheme, reflective of the
unique nature of the industry. The mining industry arrangements were not
generally discussed in depth, but the committee finds it useful to set out the
key elements of the arrangements in this report.
3.88
The department's submission is helpful in setting out the legislative
backdrop for the black coal mining industry's portable LSL arrangements.[69]
3.89
The industry was an early adopter of portable arrangements, with LSL
having been introduced in 1949, 'after the Miners' Federation lobbied colliery
proprietors, coal industry groups and federal and state governments for the
entitlement'.[70]
The department noted:
The parties emphasised that the cost could not be carried by
individual colliery owners and would need to be shared by the industry. The
Commonwealth Government at the time agreed to provide the machinery for running
such a scheme and, along with other complementary measures, introduced the
States Grants (Coal Mining Industry Long Service Leave) Act 1949 to form a
statutory scheme. With this scheme, the Commonwealth collected an excise per
ton of coal produced and made grants to the states, which was used to reimburse
employers for their long service leave liability.
...
By 1990 there was an accrued unfunded liability for untaken
long service leave that the coal excise could not cover. The unfunded liability
was estimated at $250 million, and the Commonwealth Government sought to
recover this liability through the establishment of a Commonwealth statutory
scheme that collected funds based on a levy on employers. [71]
The legislative framework enables:
-
the raising of levies by the
Commonwealth on employers of persons in the black coal mining industry; and
-
the making of appropriations to
the Coal Mining Industry Long Service Leave Fund to form assets from which
reimbursement payments are made.[72]
3.90
The department explained that since 1993, employers have been required
to pay a levy of payroll into the fund managed by the Corporation, which can
use the levies to pay LSL entitlements and invest for the future.[73]
3.91
The department also notes that:
... the entitlement to long service leave under the Coal LSL
Act overrides any entitlement in the Fair Work Act or in state or territory
laws. It does not override entitlements or rights under an industrial
instrument, as the Act establishes a minimum entitlement to long service leave
(see sections 39E, 39EA and 39EB of the Act). Employers are reimbursed for long
service leave payments made to eligible employees.[74]
3.92
In its submission, AMMA notes changing labour markets and labour
mobility and suggests that these will change further, but argued that this does
not justify extending LSL portability because the two are not linked.
3.93
This evidence demonstrates that different industries operate in vastly
different ways, such that a 'one size fits all' approach to consideration of
LSL portability may not be appropriate. This being the case, in considering the
extension of portability to all workers, care should be taken to properly
consult widely so that all relevant issues are factored in to any major
decisions that may affect both business and workers.
3.94
For example, given the critical role that nurses and carers play in our
communities, and the nature of the health sector workforce including its large
proportion of women, consideration should be given to extending portable LSL to
this sector so that these workers can plan to periodically take an extended
paid break. However, in light of the potential cost to the sector and the flow
on effects this could have, any move to portable LSL in the health sector
should be approached with due care and consideration for both employers and
workers.
The argument against portability
3.95
While many submitters are supportive of extending portable LSL to all
workers, a significant portion of submitters opposed its introduction, although
many of these also supported nationalisation of the LSL standard. In arguing
against portable LSL two main themes emerged – cost and ideology.
3.96
The additional financial cost of extending portable LSL to all workers
is of great concern to some submitters. It is argued that the cost burden would
be detrimental for business and was likely to have flow-on effects to workers
as businesses will be left with less financial resources, and will essentially
be constrained from investing in staff.
3.97
Second, a number of submitters argued that extending portable LSL to all
workers would be counter-intuitive to the purpose of LSL, which is to reward loyal,
long-serving employees after a threshold period of time.
3.98
The committee will consider the argument against portability, below,
focussing on these two areas.
Cost
3.99
Possibly the strongest argument against extending portability to all
workers is that of the additional cost burden it would impose on employers. Costs
involve the need to put money aside to pay for LSL for each employee, as well
as the cost of administration of portable LSL schemes.
3.100
The McKell report noted potential disadvantages of LSL portability
included administration costs for employers which may be pronounced during
transition periods for new schemes, the cost of providing benefits for
employees who leave after a short period of service, and prefunding impact on
business cash flows.[75]
3.101
However, submitters also raised concerns about the cost to Australia's
competitiveness, given our relatively high labour market costs, and therefore
the cost to the community because these costs can affect employment.
3.102
AMMA argues that the cost is high when a contingent liability turns into
an absolute one and explains:
LSL is unique in that it is (with a very few exceptions)
contingent on a service threshold being met, both for being paid out pro-rata
on termination and for triggering the actual taking of leave. Where employment
terminates prior to the pro-rata payout threshold being met, quite rightly
monies remain with the employer.
A portable LSL scheme, either for an industry or universally
for all employment fundamentally changes this. It makes what is currently a
contingent or conditional liability (extended service being required for LSL)
into an absolute liability (OLSL is payable on all hours worked, from day one
of employment).[76]
3.103
AMMA argues that extension of portability to all 'universalises the
proportion of employees for whom LSL payments must be made, increasing labour
costs'.[77]
Further, that LSL essentially becomes a 'universal tax or payment on
employment' which would increase already high labour costs and reduce
competitiveness.[78]
3.104
AMMA suggests that in addition to the direct cost of additional LSL
contributions an employer would be required to make to cover LSL for all
employees, there would be a significant opportunity cost because the employer
would have less money to invest and realise gains.[79]
3.105
The AiGroup estimated that:
... the cost burden on employers if portable long service leave
entitlements were to be provided to all Australian workers would be more than
four times the cost burden imposed by the general long service leave laws in
Australia. [80]
3.106
AiGroup indicates that the actual cost of implementing a portable long
service leave scheme would cost Australian employers over $16 billion per year,
and would damage the Australian economy, leading to adverse effects on
Australian workers through 'lower employment, downsizing and plant closures'.[81]
3.107
It was suggested at the committee's public hearing by the AiGroup that
extending portability beyond what already exists, is
...effectively putting a nearly three percent tax on
employment, and that is going to have a massive impact on jobs. You cannot just
put a three per cent cost on business and expect that to not have any impact on
its ability to employ people.[82]
3.108
ARTIO opposes an extension of portable LSL, citing high costs as a
consideration:
The minimum cost of doing so, being in the order of $660M per
annum to the fright and logistics industry, would limit funds available for new
investment and job growth.
The cost to the Australian economy of around $9 billion is
extreme and clearly unaffordable.[83]
3.109
It is not clear to the committee how ARTIO arrived at the figures quoted
to establish a portable LSL scheme.
3.110
VACC opines that portable LSL 'risks creating problems of cash flow for
some businesses. This is particularly relevant for small businesses, which deal
with smaller sums and profit margins than larger businesses'.[84]
3.111
In support of its view, VACC goes on to reference results of a telephone
survey of VACC members as part of the 2014-15 Annual Wage Review and says that
the 'automotive industry, outside the major manufacturers, consists predominantly
of small businesses'.[85]
This, VACC argues, demonstrates that the automotive industry is 'especially
vulnerable' to the 'additional operating expenses of portable LSL'.[86]
3.112
Concerns about the costs to employers of extending LSL portability is
not limited to just the impact of employers having to set funds aside for
future payment of LSL to workers. The potential impact on labour costs and
competiveness was explored by a number of submitters.
3.113
For example, ACCI argued that, given the uniqueness of LSL, 'an
expansion of this entitlement will have the effect of increasingly [sic]
already high labour costs by global standards, impacting Australia's
international competitiveness and attractiveness as a location for investment'.[87]
3.114
AFEI suggests:
The most significant consideration must be the impact of
increasing benefits and entitlements on productivity and our competitive
position. We are already uncompetitive in many areas... We do not need to add to
this burden of disadvantage with yet another unaffordable increase in labour
costs.[88]
3.115
The AAA raised concerns that the costs of a portability scheme 'would
simply reduce operating cash flow in an already seasonal business'.[89]
3.116
The committee notes the concerns raised by some submitters about the
additional costs that may be incurred by businesses if LSL portability is
extended to all workers. While the committee accepts that these costs are a genuine
concern to business, it is of the view that consideration of extending
portability to all employees is worthwhile and that stakeholders should work
together to find a way to extend portability of LSL, whilst being sensitive to
business realities.
Ideological objections
3.117
Aside from arguments against portability of LSL on the basis of cost,
many submitters reject extending portability to all workers for ideological
reasons which are tied intrinsically to the original purpose of LSL.
3.118
Ideological arguments against LSL rely heavily on the acceptance of the
traditional purpose of LSL to provide a reward to loyal, long-term workers, and
conversely, an incentive for workers to stay with their employer for long
periods of time. Those submitters opposing extending portability of LSL
essentially argue that universal portability is in direct conflict with the
purpose of LSL.
3.119
At the public hearing, ACCI stated:
A key characteristic of the current long service leave regime
which would be lost with the benefit of portability is the benefit that employers
derive – that is, that in accumulating long service leave, the employee has
given long service to an employer, providing the employer with continuity,
stability and greater productive benefits.[90]
3.120
The AFEI strongly objected to the extension of LSL portability to all
workers, arguing that, not only is it costly, but that it defeats the inherent
purpose of LSL:
Long service leave is a costly workplace entitlement with
significant financial impact in terms of both financing and managing absence.
The principle underpinning the provision of long service leave is that it is
leave with pay given to employees in recognition of long and continuous
employment with one employer. It is not a reward for being in the workforce.
This principle was enunciated with the introduction of long service leave in
each jurisdiction and should be adhered to if long service leave is to be
retained in those jurisdictions, despite the emergence of limited, industry
specific long service leave schemes in recent years.[91]
3.121
AMMA refers to statements made by the McKell Institute,[92]
consistent with the McKell report recommendations which acknowledge that
portable LSL would no longer be LSL and should be called something else. The
McKell Institute recommends:
That the Commonwealth government find ways to extend coverage
of Long Service Leave through a portable scheme to include the large
proportions of the workforce who are mobile between employers as a result of
changing career patterns, rapidly shifting sectoral labour demand, and the
growth of workplace flexibility through casual and part-time employment.
That the name for this employee benefit be changed to Accrued
Employment Leave in recognition that it would no longer be tied to service with
one employer.[93]
3.122
In short, it is the view of some submitters that to extend LSL to all
workers essentially defeats the purpose of rewarding long-term, loyal workers
after a period of time.
Suggested models for change
3.123
The committee notes that submitters have suggested ways in which
portability schemes might be managed. In particular, the ACTU has suggested
three models for portability of long service leave:
-
The approved deposit fund model which is based on Approved
Deposit Funds or Rollover Funds, established in the superannuation industry
during the 1980s.[94]
-
The industry-based defined benefit fund model which would involve
employers in the relevant industries being registered with a fund for their
industry.[95]
-
The accumulation model which involves employers making regular
contributions for all eligible employers into designated LSL accounts
administered by superannuation funds and/or authorised financial institutions.[96]
3.124
These options were not considered in any depth during the committee's
public hearing, and the committee makes no findings on a preferred model, but
notes that any future model should be designed only after extensive
consultation with employer and employee groups.
Conclusions
3.125
The committee's inquiry identified two key issues that employer and
employee groups are grappling with in relation to LSL: nationalisation of the
LSL standard, and portability of LSL entitlements.
3.126
On the first of these issues, the evidence received has demonstrated
that while there is a disparity of views about LSL as a whole, most submitters
agree that the current LSL arrangements are complex and can lead to confusion
in determining a worker's entitlements to LSL. This being the case, support for
nationalisation of the LSL standard is widespread.
3.127
On the second issue, the way forward is less clear. Strong arguments
have been made about the benefits of a period of paid leave for workers after
many years in the workplace, noting that the workforce has changed since the
inception of LSL in Australia in the 1860s.[97]
This suggests that it is time for fresh consideration of what LSL means in
Australia.
3.128
In spite of the potential benefits to workers, two main objections to
extension of LSL to all workers have been made - cost to employers and because
the traditional purpose of LSL is to reward workers who work continuously with
a single employer over a long period of time.
3.129
The committee also learned that a number of particular industries and
sectors have portable LSL arrangements available to their workers. However,
support for extension of these schemes is not universal, generally because of
the associated cost.
3.130
The committee considered the range of arguments made about portability
of LSL and concludes that in the first instance, nationalisation of the LSL
standards – while challenging – would benefit both employers and workers.
3.131
On the issue of extending portability of LSL to all workers, the
committee concludes that it would be useful to properly investigate the
potential costs to employers of extending portable LSL to all workers. This
step would pave the way for a meaningful discussion in the future, about
whether extension of entitlements can be achieved without damaging Australia's
business sector or putting jobs at risk.
Recommendations
3.132
The committee recommends that the ABS considers whether the
development of an insecure work indicator would be useful in understanding
exactly what insecure work means in Australia. The process for doing so should
involve extensive consultation.
3.133
The committee recommends that detailed modelling be undertaken by
the government to determine the potential cost to employers of extending portable
LSL entitlements to all workers. This should involve consideration of the cost
of staff turnover including rehiring, training and loss of corporate knowledge,
against the cost of establishing a portable LSL scheme.
Senator Sue Lines
Chair
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