Transferring Long Service Leave in Australia: Employer’s Compliance Guide

Transferring long service leave (LSL) can be tricky, especially if you’re buying a business, restructuring, or moving staff between related entities. The big questions we hear are simple: does long service leave transfer to a new employer, and what do you need to do to stay compliant?

The short answer is: it depends on the situation and the state or territory law that applies. LSL is largely governed by local legislation (not the National Employment Standards), so getting the rules right up front will save you time, cost and disputes later.

In this guide, we’ll unpack how LSL works in Australia, when it transfers, what to write into your deal documents, and practical steps to stay compliant as an employer. If your scenario is complex, it’s a good idea to get tailored advice from an employment lawyer who understands the rules in your jurisdiction.

What Is Long Service Leave In Australia?

Long service leave is a paid leave entitlement that rewards an employee’s long service. While the qualifying periods and accrual formulas differ across states and territories, the general idea is the same: after a long period of continuous service, employees are entitled to a block of paid leave, with pro-rata rights sometimes kicking in after a certain threshold.

• State and territory-based: LSL is set by local legislation, which defines “service,” “continuous service,” pro-rata thresholds, and how entitlements are calculated.
• Different to annual or personal leave: LSL is a one-off entitlement for long service and doesn’t accrue or reset like annual leave.
• Industry carve-outs exist: Some industries operate portable LSL schemes (more on this below), which follow the worker rather than a single employer.

Because LSL is statutory and jurisdiction-specific, awards or enterprise agreements generally do not displace state LSL laws (unless the law itself allows it). Always start by checking the applicable state or territory Act for your workforce.

Does Long Service Leave Transfer To A New Employer?

Whether LSL transfers depends on why and how the employment changes. There are three common scenarios.

1) Transfer Connected To A Business Sale Or Restructure

Where a business is sold or restructured and employees move across to the new employer in connection with that transaction, state or territory LSL legislation will often require the new employer to recognise the employee’s prior service for LSL purposes. The technical rules vary by jurisdiction, including how “continuity” is defined and which breaks in service are permitted.

From a practical standpoint, this is managed during due diligence and documented in the sale paperwork. The buyer and seller can agree between themselves who will fund LSL liabilities, but any private allocation of risk cannot cut down an employee’s statutory LSL entitlement. If a payout of accrued LSL is made at completion in accordance with the law, the new employer may not need to recognise prior service for future LSL-again, this turns on the local legislation and the way the deal is structured.

2) Ordinary Job Change (No Sale Or Transfer)

If an employee resigns and joins an unrelated employer with no sale, restructure or other recognised transfer, LSL usually does not transfer. In that case, the employee starts accruing LSL afresh with the new employer, and any entitlement with the previous employer is handled under the relevant Act (e.g. payout on termination if the employee has reached the threshold for pro-rata).

3) Industries With Portable Long Service Leave

Some industries operate portable LSL schemes, so the entitlement follows the worker across registered employers within that industry. Construction and contract cleaning are common examples in several jurisdictions, and some states also cover community services or other sectors via a statutory fund. If you operate in a covered industry, you must register and make the required contributions. In these schemes, the LSL is “portable,” so it effectively transfers as workers change employers within the industry.

If you’re moving people between related entities without a sale, you’ll also want to consider service continuity rules outside portable schemes. Our guide to transferring employees within group companies steps through how transfers work more broadly.

How To Manage LSL In A Business Sale Or Transfer

When you acquire a business or shift employees to a new employing entity, planning early will help you avoid underpayments and surprises. Here’s a simple framework.

1) Get Complete And Accurate Employee Records

Ask the seller (or the current employing entity) for robust employment records: commencement dates, classification/award coverage (if any), breaks in service, hours, and current LSL accruals calculated under the correct state or territory Act. If records are incomplete, factor this into risk and pricing, and rectify as part of completion deliverables.

2) Allocate LSL Liabilities In The Deal Documents

The Business Sale Agreement should clearly state which employee liabilities the buyer is assuming and which remain with the seller. This includes how LSL will be treated-whether balances are carried over and recognised by the buyer, or paid out by the seller at completion in accordance with the applicable law.

If you’re still in diligence, consider engaging a lawyer to scope employment liabilities through a targeted legal due diligence. That way, LSL is priced and papered correctly from the outset.

3) Check The Correct Legislation (By Jurisdiction)

Each state and territory has its own rules about continuity, recognised service, pro-rata thresholds and calculation methods. Before you lock in the approach, confirm which Act applies to each employee (this can depend on where work is performed) and follow that Act’s rules for transfer scenarios. If there is an enterprise agreement in place, check it alongside the legislation to ensure there’s no inconsistency that would disadvantage employees.

4) Decide Between Carry-Over Versus Payout (Within The Law)

In many deals, the parties choose one of two pathways for LSL liabilities:

• Carry-over: the buyer recognises prior service and takes on the liability going forward (often receiving an adjustment in the purchase price or a specific indemnity).
• Payout at completion: the seller pays accrued LSL in accordance with the Act and the buyer treats continuing staff as starting fresh for LSL purposes-where the legislation permits this outcome.

Whichever approach you take, it should align with the applicable Act and be reflected in the sale agreement and completion mechanics. If you’re unsure, it’s worth speaking with a business sale lawyer to confirm the most compliant and cost-effective path.

5) Communicate And Update Payroll Systems

Let employees know how their prior service will be treated, when the change takes effect, and where to go with questions. Then update your payroll and HRIS so accruals, leave balances and anniversary dates are correct from day one. Clear communication reduces confusion and supports a smooth transition.

Portable Long Service Leave: Who Must Register And What To Do

Portable LSL schemes are designed for industries where workers regularly move between employers. If your business sits in a covered sector in your state or territory, you’ll usually need to register, report service and make periodic contributions to the scheme fund.

• Check coverage: Confirm whether your workers fall within a portable scheme in your state or territory (e.g. construction or contract cleaning). Coverage and definitions vary.
• Register and contribute: If you’re covered, register promptly and set up payroll processes to meet reporting and contribution requirements.
• Onboarding/offboarding: Make sure new starters are properly set up with the scheme and that service is reported when they leave.

Portable schemes change the way LSL is accrued and paid, but the compliance obligation remains with the employer. Build these steps into your standard onboarding and payroll workflows to avoid arrears and penalties.

Common Pitfalls (And How To Avoid Them)

Most LSL problems are preventable. Here are the issues we see often-and how to steer clear of them.

• Assuming national rules: LSL is not a National Employment Standards entitlement for most private-sector employees. Always apply the correct state or territory law to determine transfer, recognition and calculations.
• Contracting out of LSL: Private agreements between a buyer and seller can allocate who pays, but they can’t reduce an employee’s statutory entitlement. Make sure your contracts reflect the law, not the other way around.
• Misunderstanding “continuity”: Each jurisdiction defines “continuous service” and permitted breaks differently. Don’t guess-check the Act before deciding whether service carries over.
• Wrong calculations: Using the wrong accrual rate, ignoring ordinary pay rules, or mixing up pro-rata thresholds are all common errors. Confirm the formula under the relevant Act and set it up correctly in payroll.
• Ignoring portable coverage: If your industry is covered by a portable scheme, you must register and contribute, even if your workers are casual or project-based.
• Poor record-keeping: Missing start dates, service breaks, or hours worked will make LSL calculations unreliable. Good records are a legal requirement and your best defence in a dispute.

If terminations are part of a restructure or acquisition, make sure your processes and letters are aligned with your obligations. Where needed, have your team’s termination documents and calculations reviewed before issuing them.

What Documents And Policies Should Employers Put In Place?

Strong documents make LSL transfers smoother and reduce risk during deals and restructures.

• Business Sale Agreement: Sets out which employment liabilities transfer, how LSL will be handled (carry-over or payout), price adjustments and indemnities.
• Employment Contract: Confirms employment terms, working hours and classification, and should be consistent with the correct LSL legislation and any enterprise agreement.
• Staff Handbook: Outlines how your business manages leave requests and record-keeping so employees know what to expect.
• Completion deliverables: Letters of offer for transferring employees, accurate leave balance statements, and payroll setup instructions so the transition is clean.
• Internal SOPs: Payroll and HR checklists that cover service recognition rules, portable scheme registration and reconciliation, and record-keeping standards.

If you’re transitioning staff within a corporate group, align your internal documents with how service will be recognised across entities to avoid inconsistent treatment. For more on internal transfers, see transferring employees within group companies.

Key Takeaways

• LSL is governed by state and territory laws, so the rules on transfer, continuity and calculation depend on where your employees work.
• In business sales or restructures, prior service is often recognised for LSL-plan early, document liabilities in the Business Sale Agreement, and communicate clearly with staff.
• Ordinary job moves with no sale or transfer usually don’t carry LSL across; portable LSL schemes are the exception in specific industries.
• You cannot contract out of statutory LSL entitlements. Parties can allocate who funds liabilities, but employee rights under the Act must be preserved.
• Good records, correct payroll setup and clear policies are essential to avoid underpayments and penalties; where in doubt, speak to an employment lawyer.

If you’d like a consultation on transferring long service leave, handling a business sale or updating your employment agreements, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.