GUIDANCE NOTE ON THE CALCULATION OF REIMBURSABLE AMOUNTS AND ELIGIBLE WAGES FOR THE PURPOSE OF CALCULATING LONG SERVICE LEAVE LEVY

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1 GUIDANCE NOTE ON THE CALCULATION OF REIMBURSABLE AMOUNTS AND ELIGIBLE WAGES FOR THE PURPOSE OF CALCULATING LONG SERVICE LEAVE LEVY THE PURPOSE AND NATURE OF THIS GUIDANCE NOTE This Guidance Note is provided by the Coal Mining Industry (Long Service Leave Funding) Corporation (the Corporation) to assist employers to understand the Corporation's approach to the reimbursement of long service leave (LSL) payments made by employers and the Corporation's view on what are eligible wages for the purposes of calculating LSL levy. Whilst this Guidance Note represents the opinion of the Corporation, it is not intended as legal advice and is not determinative of legal rights or obligations. This Guidance Note is provided in two parts: Part A How is a reimbursable amount calculated? Part B What are eligible wages for the purposes of calculating LSL levy? THE LONG SERVICE LEAVE SCHEME The Corporation is responsible for administering the long service leave scheme which applies in the black coal mining industry (the LSL Scheme) and which is governed by the Coal Mining Industry (Long Service Leave) Administration Act 1992 (the Administration Act). The Coal Mining Industry (Long Service Leave) Payroll Levy Act 1992 imposes a LSL levy which is calculated as a percentage of specified amounts (eligible wages) paid to defined employees in the black coal mining industry (eligible employees). The employer of those employees is liable to pay the levy. Under the Coal Mining Industry (Long Service Leave) Payroll Levy Collection Act 1992 (the Collection Act), the Corporation is responsible for collecting LSL levy from an employer of eligible employees. Once collected, the LSL levy is paid into the Coal Mining Industry (Long Service Leave) Fund (the Fund). The Fund is then invested by the Corporation for the purposes of ensuring the sustainability of the Fund into the future. The Corporation creates a notional account in the Fund in respect of each person who is an eligible employee after 1 January The notional account is credited by the Corporation each month based on the amounts of LSL levy paid by the employer in respect of the employee. 1

2 PART A - HOW IS A REIMBURSABLE AMOUNT CALCULATED? Under the LSL Scheme, employers can make a claim to the Corporation for a reimbursable amount, if the employer has made a payment to an eligible employee in respect of the employee's LSL entitlements. The Corporation has made the Employer Reimbursement Rules 2011 (the Rules) that set out how it will calculate a reimbursable amount in response to a claim from an employer for such an amount. The Rules are legislation and are therefore binding on the Corporation. As a first step, the Corporation will establish whether the claim for reimbursement relates to amounts paid in respect of LSL entitlements accrued before or after 1 January If the claim for reimbursement includes a portion in respect of an employee's LSL entitlements accrued before 1 January 2012, the Corporation will calculate that portion based on the approach generally taken for employer reimbursements under the LSL Scheme which operated before that date. The portion of any claim for reimbursement that relates to payments made for an employee's LSL entitlements accrued after 1 January 2012, will be calculated by the Corporation differently from the way it calculated reimbursement for payments for service before 1 January This is because the reimbursable amount for post 1 January 2012 entitlements is calculated based on the amount in a notional account recorded in respect of the employee by the Corporation after 1 January An employer claiming reimbursement for paying LSL entitlements in respect of an eligible employee's service after 1 January 2012 will not be reimbursed any amount exceeding the amount the Corporation records as being available for reimbursement to an employer from the relevant employee's notional account. Differences between LSL payments and the reimbursable amount paid by the Corporation In some circumstances, an employer may encounter "shortfalls" between the amounts reimbursed to the employer by the Corporation from a notional account and the amounts actually paid out by the employer in respect of an employee's LSL entitlements. 1 On 1 January 2012, changes to the Administration Act and Collection Act took effect to amend the way in which LSL was accrued by eligible employees and LSL levy was calculated by employers. 2

3 There are two main reasons why such shortfalls may occur and these are outlined below: An employer pays an employee for more LSL than the LSL credit recorded by the Corporation for that employee This may occur because some of the employee's service which the employer recognises as counting towards a LSL entitlement was not service as an "eligible employee" under the Administration Act or because an employer has not always provided to the Corporation accurate information about the employee's service. If an employer considers that the Corporation's records are incorrect, the employer should contact the Corporation to discuss the discrepancies. Amounts recorded in an employee's notional account are insufficient to fully reimburse the employer for the amount paid to the employee for LSL This may occur in a number of circumstances including the following: There may have been substantial increases in the employee's remuneration between the time when the levy was calculated and paid based on the "base rate of pay" of the employee and the time when an employer pays the employee in respect of their LSL. An employer may have agreed with an individual employee, or through an enterprise agreement, to pay for LSL at a rate that leads to a shortfall. There may be periods of an employee's service as an eligible employee when the levy has not been paid in full or at all by the employer that was then liable to pay the levy. Naturally the Corporation takes all reasonable steps to avoid this occurring. There may be periods during which an employee is accruing LSL credits but during which levy is not required to be paid, for example, when an employee is being paid workers compensation. The notional account of an employee is affected by the movements in the value of investments by the Fund and by the Corporation's expenses in administering the LSL Scheme and the Fund. 3

4 PART B WHAT ARE ELIGIBLE WAGES FOR THE PURPOSES OF CALCULATING LSL LEVY? Employers are required by the LSL Scheme to make payments of LSL levy to the Corporation and the making of these payments is dealt with by the Collection Act. The amount of LSL levy to be paid depends on the amount of eligible wages paid to the eligible employee. This is because employers are presently required to pay, as LSL levy, 2.7% of an employee's eligible wages to the Corporation each month. The term "eligible wages" has a defined meaning under the Collection Act and employers must ensure that, each month, they properly calculate each of their employee's eligible wages in accordance with the statutory requirements of that definition. Collection Act 3B Meaning of eligible wages (1) If an eligible employee is paid a base rate of pay and is not a casual employee, the employee s eligible wages are the greater of: (a) the base rate of pay paid to the employee, including incentive-based payments and bonuses; and (b) 75% of the base rate of pay paid to the employee, including: (i) incentive-based payments and bonuses; and (ii) overtime or penalty rates; and (iii) allowances (other than those for reimbursement of expenses). (2) If an eligible employee is paid an annual salary, the employee s eligible wages are the annual salary paid to the employee, including incentive-based payments and bonuses but excluding: (a) overtime or penalty rates; and (b) shift-loadings. (3) If an eligible employee is a casual employee, the employee s eligible wages are the base rate of pay paid to the employee, including incentive-based payments and bonuses. (4) In this section: (a) a reference to the base rate of pay paid to an employee is a reference to the employee s base rate of pay before any amounts are deducted under a salary sacrifice arrangement; and (b) a reference to the annual salary paid to an employee is a reference to the employee s annual salary before any amounts are deducted under a salary sacrifice arrangement; and (c) a reference to an incentive-based payment paid to an employee is a reference to a payment of that kind that is paid to the employee at least once a month; and (d) a reference to a bonus paid to an employee is a reference to a bonus that is paid to the employee at least once a month. 4

5 "Base rate of pay" in the definition of eligible wages has the same meaning it has in the Fair Work Act Fair Work Act Meaning of base rate of pay General meaning (1) The base rate of pay of a national system employee is the rate of pay payable to the employee for his or her ordinary hours of work, but not including any of the following: (a) incentive-based payments and bonuses; (b) loadings; (c) monetary allowances; (d) overtime or penalty rates; (e) any other separately identifiable amounts. The base rate of pay is the actual base rate of pay to which the employee is entitled under their contract of employment and, where applicable, an enterprise agreement. When are eligible wages to be calculated? The Collection Act requires an employer to make a payment of LSL levy to the Corporation no later than 28 days after the end of a month in which an eligible employee is employed. As the calculation of eligible wages must necessarily take into account the amounts of base pay (and other amounts see below) actually paid to the employee in a month, an employer should therefore only calculate those wages at the end of the month, or if no further payments are due to be paid to the employee before the end of the month, at that time. How is an employee's eligible wages calculated? The first step is to establish which of the 3 relevant definitions of eligible wages in section 3B of the Collection Act applies to the eligible employee, based on whether the employee is: paid a base rate of pay and is not a casual employee; paid an annual salary; or a casual employee. 5

6 For an eligible employee who is paid a base rate of pay and is not a casual employee Calculate 2.7% of the greater of the amounts (A or B) set out below: A Section 3B (1) (a) The total of: the employee's base rate of pay incentive-based payments and bonuses* 75% of: B Section 3B (1) (b) the employee's base rate of pay incentive-based payments and bonuses* overtime or penalty rates allowances (other than for reimbursement of expenses) The calculation must be made for each employee, each month. Employers should not simply set in place an "automatic" LSL levy payment, based on one or the other of the A or B amounts, as this may lead to an underpayment or overpayment of levy. The proper calculation of levy by an employer based on the above comparison may be the subject of enquiries by the Corporation, including after the receipt of the employer's audit report following the end of the financial year. For an eligible employee that is paid an annual salary Calculate 2.7% of the annual salary of the employee, including incentive based payments and bonuses but excluding overtime or penalty rates and shift-loadings. For an eligible employee that is a casual employee Calculate 2.7% of the amount (as described in A above) that is paid to the employee. There is no requirement to undertake any comparison against a Loaded Up amount for casuals under the LSL Scheme. Employers should not though restrict any calculation of eligible wages to only 35 hours per week when considering the payments made to a casual employee. If the casual employee works more than 35 hours in a week, then the employer must include the base rate of pay paid for all of those hours when calculating the eligible wages of that employee. 6

7 *Incentive based payments and bonuses For the purposes of calculating eligible wages, incentive based payments and bonuses are paid at least once per month. This means if such payments are paid less frequently e.g. quarterly, half yearly or annually, they are not to be taken into account in calculating the eligible wages of an employee. See sections 3B(4)(c) and (d) as set out above. Salary sacrifice arrangements When calculating the eligible wages of an employee, the employer must also include in the base rate of pay any amounts that are deducted from the employee's eligible wages under a salary sacrifice arrangement. This includes salary sacrifice arrangements for such purposes as superannuation contributions, vehicle leases etc. See sections 3B(4)(a) ad (b) as set out above. Workers compensation or other income protection payments If the eligible employee of an employer is receiving workers compensation or other income protection payments directly from an insurer or other source, the employer is not required to include those amounts when calculating the eligible wages (if any) paid to that employee during a month. However, if the employer receives a compensatory payment in respect of the employee and the receipt of that payment results in the employee being paid in the ordinary way by the employer, then the employee's eligible wages are to be calculated as described in this Guidance Note. 7