Is long service leave an anachronism?

As of close of business this afternoon, I am on long service leave. But is this an anachronistic institution?

Certainly long service leave’s historical rationale is no longer compelling. It began in South Australia and Victoria in the 1860s as a scheme that allowed civil servants 6-12 months leave to go home to Britain after 10 years service in the colonies. Given the lengthy transit times a substantial period off work was necessary to make the trip to Europe. Obviously this is no longer the case.

It wasn’t until the 1950s that long service leave became widespread in the private sector, and it is now a statutory right. No other country incorporates such a right into their labour market regulations.

Criticism of long service leave is not confined to free marketeers. Some people say that changes in labour market conditions towards more casual and contract employment mean that long service leave is less relevant.

This objection is probably over-stated, as contrary to common perceptions job tenure patterns in the Australian labour market are fairly stable. In February 1974, 24.1% of ABS labour market respondents had been in their job 10 years or more. In February 2008, 24.2% of respondents had been with their employer for 10 years or more (I’m not sure whether the change in question from job to employer is significant).

There has also always been high turnover – 25.1% in their jobs for 12 months or less in 1974, 22.1% in 2008. The later ABS report does not publish its figures by age, but I expect the earlier pattern of high turnover being driven by young workers persists. Most workers will eventually move into a long service leave eligible job, and a large proportion will eventually qualify for long service leave.

Even so, it is not clear why overall employee compensation should be biased towards people who stay with the same employer for a long period of time. In some firms it could make sense. Perhaps those with high levels of firm-specific human capital would benefit from such an incentive. Other firms may find benefit in allowing employees to refresh themselves (my employers may gain from allowing me time away from urgent things to concentrate on more interesting things). But in many other cases staff turnover in under 10 years is healthy, allowing new people to take a fresh look at a job.

As with many aspects of the labour market, the diversity of jobs and employees suggests that individual contracts or enterprise agreements would be a better mechanism than statute for deciding on leave arrangements.

36 thoughts on “Is long service leave an anachronism?

  1. I can certainly vouch for the economic inefficiency of long service leave. I have been anxious to leave my job for months now, but am sticking around solely to get LSL in October. During this time I have not been nearly as productive as I could be for my current company, and my skills are stagnating, which affects my productivity in future jobs.
    .
    If they introduced pro rata LSL after five years, this would reduce the sort of inefficiencies I am facing, but would increase the number of people eligible. Maybe they could reduce the benefit to 6 weeks while introducing pro rata LSL as a compromise.

    Like

  2. This is an interesting question. In South Africa, where I came from, people used to get a 13th cheque in their birthday month as a annual bonus (we were paid monthly). That doesn’t happen in Australia, rather there is additional leave if you stay with the employer for ten years (although that is being watered down to a pro rate after seven or so year in some insudtries). The real issue for me isn’t whether it is an anachorism or not, but rather why would anyone actually take the leave? Unless you have something you would rather be doing (finishing a book, or doing home renovations, visiting overseas or the like) why take extra leave? I understand that some people hang around and then use the LSL to look for another job – I even respect that position, but if you intend to return, why do it?

    As it happens, my employer allows people to cash in their LSL after 16 years. With one more year to go, that’s what I’ll be doing. Not as profitable as a 13th cheque perhaps but it’ll go to the mortgage.

    Like

  3. “Unless you have something you would rather be doing (finishing a book, or doing home renovations, visiting overseas or the like) why take extra leave?”
    .
    Who doesn’t? The handy thing for me is that it means I can potentially take a holiday at a time of year I couldn’t otherwise. If you want to go to Nepal, for example, the best times are smack in the middle of the the teaching semester so despite having holidays over Christmas, it makes this harder (although certainly not impossible at least where I work — but I assume it is for many others). It also means I don’t have (a) sit in useless and time wasting meetings; and (b) put up with adminstrivia. I can’t wait just for those two latter things to happen.

    Like

  4. The money or the leave? I’m with Conrad on this one. While I do like working, what I lack in my normal life more than money is time to read and think about things that interest me but are not immediate high priority items for my employers. Time to think and read ‘off subject’ is a luxury I haven’t had since I was an undergraduate.

    Like

  5. Is this really your life Andrew? Spruiking the furious dynamism of the market while clocking on and off like a clerk at the Vic Rail parcels office, with a cheese sandwich in your briefcase and your retirement date on your ID?
    Jesus, man, tomorrow you might wake up and find a lump. It might all be over in 6 weeks. Or months. Or 5 years. For goddsake get out and live a little.

    Like

  6. Andrew – I hope you’re not disappointed by the experience. Fond memories of long-lost interests are not always happy experiences.

    Like

  7. Sinc – Well I did go for two rather than three months partly because I was not sure whether I would like it or not. But I do have big piles of interesting-looking unread books to get through.

    Like

  8. I recall working in the US and when i had worked for a firm for seven years I asked if they were accruing long service entitlement. HR looked at me like I had two heads.

    Like

  9. Andrew I am with Ramble on this. Work to live, don’t live to work.

    In 14 years of real work with computers and IT (working the prior 10 for my family doesn’t count it seems) I have already had 2 breaks of more than 2 months. In both cases it was my choice to take the break and both were unpaid.

    To my friends and family I explain this as having an sabbatical. I use the time off to explore other areas semi-related to my current specialization and just kick back and enjoy not working.
    The idea that I could find an organization that would keep me busy for 10 years straight is a joke if there was one which exists then I would want the job though. Most places I have worked don’t need me full-time after 3-6 months let alone 10 years.

    Like

  10. Paul – My jobs are bound up with causes and issues I believe in and care about, and from that point of view my broader life takes over my work as much as my work taking over my life.

    Like

  11. I’m with AN. Make sure you choose jobs that allow you to think about and do things you like and are of interest to you if you have really deep interests in some areas — That’s why I work in a university, despite the annoyances that come with it (like idiots in management — which certainly arn’t restricted to universities) and the higher pay I could probably get if I was motivated more by money (and even if this did concern me, I could move back overseas and get paid better with less tax to do essentially the same job anyway).

    Like

  12. “The idea that I could find an organization that would keep me busy for 10 years”
    .
    Perhaps you need to find something where you keep yourself busy, versus letting someone else find something to keep you busy.

    Like

  13. Took it along with accumulated holidays and did a honors year. Didn’t seem like a waste for me. Come to think of it. I’m due for my second lot. Umm what to do, what to do?

    When you work ordinary time you get paid some and you accumulate some benefits. Helps the companies cash flow as they don’t have to fork out all the cash straight away. If you or the company don’t like it, negotiate casual rates and put money aside to support yourself through your holidays, be they once a year, or whatever.

    Many managers don’t seem to realise time and a half actually isn’t that expensive as overtime doesn’t carry the benefit proportion that normal time does.

    Like

  14. “When you work ordinary time you get paid some and you accumulate some benefits. Helps the companies cash flow as they don’t have to fork out all the cash straight away”
    .
    Actually, it’s the opposite at some places. I’m constantly getting little notices telling me to take my holidays or forfeit them. I don’t see why we can’t just roll everything into one pay rate.

    Like

  15. “I don’t see why we can’t just roll everything into one pay rate.”

    You can as a casual. While legally you can’t otherwise, I suspect most employers generally prefer the current arrangement – cheaper to have employees away during naturally quiet times of the years than to pay them more through the whole year, and good to try to refresh them a bit. And most employees prefer it too. It’s easier to take and enjoy holidays if they are a sunk cost.

    Like

  16. Gosh – struggling on this one – long service leave – the big issues! Don’t know really, not fussed either. But I am all keen for bus stops to have shelters!

    Like

  17. [JC
    March 14th, 2010 09:01

    Time and half is that expensive? So you don’t multiply by 1.5 to get the hourly rate then?]

    It would seem JC is not bright enough to see the point. I will explain it again a little slower.

    Each week you earn a set amount of sick pay, holiday pay and long service leave. Your don’t earn any more by working more than your 38 hours a week.

    For the first 38 hours you only pay a proportion of the total cost immediately ( the bit that is multiplied to give time and a half) the rest goes onto your books as a liability. The proportion that goes onto the books is not included in the time and a half calculation. Defering the payment of any liability helps your cash flow. The liability you are accumulating has a value, when you employ at time and a half you are giving the value to the employee immediately.

    The loss to the employer is the deferred payment and the difference between the value of the benefits and half the wage. It’s not a zero sum game but it is a lot closer than 50% of the wage.

    Like

  18. An employee can asked to be moved off casual rates after 6 months ( modern manufactures award).

    “I’m constantly getting little notices telling me to take my holidays or forfeit them.”

    Yes, very common if the accounts matter more than cashflow.

    Like

  19. Money is always better. Fungibility is always better. It’s a no brainer for me. I like the idea of a 13th month payment. You can use the money to take unpaid leave if you really want to. Why would anyone opt to ever take extra benefits in the form of long service leave is beyond me.

    Like

  20. “Why would anyone opt to ever take extra benefits in the form of long service leave is beyond me.”
    .
    That’s because you work in an industry where it is simple to change jobs. There are a small number of jobs where the market is really tiny but they are still neccesary for one reason or another (e.g., some medical specialities, some university jobs, some science jobs, etc.). If you have one of these jobs, it basically means you can’t simply quit your job to take an extended break and get another job quickly after you come back. Thus you need some sort of arrangment to solve this problem, and historically LSL has been used, as have things like generous maternity leave schemes.

    Like

  21. @Conrad: Seems you think I dislike my job and only do it for the money. I enjoy my job and the variety of work. Think of it as a Mr Fixit type role.
    As well meaning as your advice was, it does come across a bit paternalistic… maybe I should have used a different word other than busy.
    Many employers would prefer to pay a salary which is essentially a insurance premium paid monthly (in case of disaster they have exclusive use of my time) then have to setup a Pay as you go (PAYG) arrangement.

    Like

  22. “Money is always better” – words fail me, almost.
    .
    “Why would anyone opt to ever take extra benefits in the form of long service leave is beyond me”. LSL is LSL and not any other kind of benefit. In Indonesia we used to get an extra month’s salary at Ramadan – it was fantastic, we actually ate better for a while. But money is money and leave is leave.
    .
    Over a long working life it’s a Good Thing to enjoy a few extended breaks. It balances things, provides occasions for reflection, time for renewal.
    .
    So, in the same way we decide that it’s wise to limit our choices in things like superannuation or wearing seatbelts, we can decide that extended leave is important for what it provides to a civilised life, and therefore it isn’t something we should be tempted to trade away for money.

    Like

  23. Russell, you (and to some extent Conrad) seem to miss my point.

    Taking benefit in a specific form is always less valuable than ‘cashing out’ that benefit (as long as you think the cash out is commensurate with the value you place on that benefit, in this case leave) because the money can then be redeemed for *anything you want* including being able to afford to take leave when you want it unpaid. On the other hand, a benefit in the form of leave can’t be redeemed for anything else (say shorter periods of leave but more frequent ones).

    Like

  24. I disagree Jason. I think it’s probably a good thing I can’t get my hands on my super now, because I might take it and buy a porsche. We can save ourselves the agony of temptation by denying ourselves the choice, in advance.
    .
    If LSL can be traded for money, you’ll be tempted to lose the benefits of leave … so I’d rather not be tempted. If people cash out the benefit, eventually, the concept of LSL, as leave, will be lost.

    Like

  25. “And most employees prefer it too. It’s easier to take and enjoy holidays if they are a sunk cost.”

    Indeed – one only has to note the angst with which many contractors consider public holidays to see the truth of this.

    Like

  26. “Taking benefit in a specific form is always less valuable than ‘cashing out’ that benefit”
    .
    No it isn’t, since the tax status of different benefits can be different to that of cash.

    Like

  27. LSL is important is some industries to give opportunities to more junior people. In a lot of places tasks get done only by the most qualified since it is quickest/easiest/cheapest/etc..

    That means that there are entire sections of a business dependent on one individual, who therefore barely ever takes their annual leave because they have soooo much to do. Having that person away for 3+ months actually forces succession planning, training, delegation, etc…

    Like

  28. No it isn’t, since the tax status of different benefits can be different to that of cash

    I already said as a qualifier ‘as long as you think the cash out is commensurate with the value you place on that benefit’. Now you’re getting mired in tax accounting. Exactly how do you disagree with the argument that being given money is more valuable than being given money but forced to buy a specific thing with that money conrad? At least Russell has come up with a moral paternalist argument which although I diagree with is at least relevant to my challenge.

    Like

  29. Jason I agree with you in the theory of a perfect world, but my comments were really to do with the reality of the system we currently have, so I’m not disagreeing with you at all — I think I may have incorrectly understood what you wanted to say — Of course I’d want the money if there were no other factors involved. So, based on an imperfect sysetm, I believe:
    a) Tax reasons that favor offering junkets over giving out cash (basically, if I cash in my holidays and then use them on holidays I will lose 40%).
    b) There are a small number of jobs where there is essentially no real marketplace (and some are also government monosponys), yet people still want those employees. This means holidays etc. have to be built into the contracts for people that want them (although many workplaces allow you to redeem them anyway, as SD pointed — although I assume there are some that don’t). This doesn’t mean that I don’t think that, in general, things like LSL, holiday loading etc. are anachronistic. I do.

    Like

  30. I work in IT, so I’ll almost definitely never be eligible for long service leave, but I can understand how it could be useful in certain industries or for certain individuals. I would much rather have the 2.5% raise over three months of holidays in 10 years time.

    This is probably a good example of something that can be good in some circumstances and therefore gets legislated for everyone even though it’s not useful in most circumstances.

    Like

  31. conrad – you know you can make application to get paid your holiday pay but continue working. Thus putting more spondoolaks in your pocket and relieving your employer of a liability on his/her books.

    Usually when I’ve done it -it was for someone who was in financial difficulties and was seeking that extra 2 or 3 weeks cash. I’ve also done it with someone for 3 months LSL pay – but they stayed working.

    Like

  32. @ Jason – One advantage for the employee of LSL over straight cash is that for most, increases in salary are composed of promotions and wage rises together. At the end of 10 years, you have been accruing a leave entitlement, but it is paid to you as if you accrued it as of the day you took it. In that sense at least, it beats a 13th pay in that the payout is higher. On fungibility, if you choose not to take it at all until you leave your job, then usually you can take as cash, paid out at the level of your final salary, (and possibily concessionally taxed as well, noting your caveat re tax vs principles).

    Like

  33. @ AN – Anachronistic origins may still have uses. Retraining turnovers in staff is expensive, maintaining staff builds up valuable corporate knowledge. Listening to employers moan about how hard it is to keep gen X and gen Y staff simply makes me think that golden handcuff measures like these may have an economic justification.

    Like

  34. I was just talking to a colleague who is Norwgian, and obviously we don’t get enough leave here. Apparently most people there have 5 weeks annual leave, and if you’re over 60 you get an extra week (unfortunately known as the ‘senility week’).

    Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s