Setting up long service leave in Xero and MYOB

Accrual rates to enter

These rates come from the entitlement in the Act of each state. The hours-a-year figures are our own calculation for a full-time employee who works 38 hours a week for 52 weeks. To check a balance against the rules of your state, use our accrual calculator.

Xero: assign long service leave to an employee

Xero's help centre gives these steps. In the Payroll menu, select Employees. Click the employee. Select the Leave tab. Click Assign Leave Type. Under Leave, select Long Service Leave.

If the employee already has long service leave, or if they reached their entitlement date, enter an Opening Balance. Under On termination unused balance is, choose whether to pay out unused leave on termination. Complete the remaining fields. Click Save.

When you assign a leave type, you choose a leave calculation method. Xero has four methods: Fixed Amount Each Period, Manually Recorded Rate, No Calculation Required, and Based on Ordinary Earnings. Fixed Amount Each Period gives a set number of hours each pay, based on the annual entitlement. Based on Ordinary Earnings accrues hours relative to ordinary earnings, and Xero pro-rates them.

For Fixed Amount Each Period and Based on Ordinary Earnings, you enter two figures. The first figure is Hours of leave accrued annually for a full-time employee. The second figure is the hours that a full-time employee works each pay period. Xero pro-rates the accrual on the hours that the employee works. Use the hours-a-year figure for your state from the table above.

Leave starts to accrue once the employee is in a posted pay run. Leave does not accrue in an unscheduled pay run. Casual employees have no default leave types, so assign long service leave to each casual employee separately. Xero says that you cannot assign leave to contractors.

Xero says that leave loading does not apply to long service leave payments. It also says that super guarantee applies to long service leave that the employee takes. In Xero, the Long Service Leave paid leave category is not exempt from super guarantee. The setting of this category is to pay out the leave on termination. The category is not an employment termination payment.

Xero also suggests that you assign a holiday group, so that public holidays during the leave do not reduce the balance. If you are not sure whether this applies, Xero suggests that you check with Fair Work.

MYOB Business: two pay items

MYOB's help says that you need two pay items. You need a wage pay item to pay the leave and a leave pay item to track the accrual.

For the wage pay item, go to Payroll, then Pay items, then the Wages and salary tab. If Long Service Leave exists, open it. If it does not exist, click Create wage pay item. Choose the ATO Reporting Category. Set Pay basis to Hourly, even for salaried employees.

Set Pay rate to Regular rate multiplied by 1.0000. Select Automatically adjust base hourly or salary details. Choose the employees. Click Save.

For the leave pay item, go to the Leave tab. Click Create leave pay item. Give it a name, for example Long Service Leave Accruals.

For hourly employees, choose Equals a percentage of wages. Set Percent of to Gross Hours. Enter the percentage. For salaried employees, choose Equals hours per pay period. Set Per to Year. Enter the hours a year.

Select Carry remaining leave over to next year. Link the Long Service Leave wage pay item. Choose the employees. Click Save.

MYOB's examples use the same numbers as our table. For 8.6667 weeks after 10 years, the figure is 1.6667% or 32.9335 hours a year. For 13 weeks after 10 years, the figure is 2.5% or 49.4 hours a year. You need separate leave pay items for hourly employees and salaried employees. You also need separate leave pay items for employees who accrue at different rates.

To record leave that the employee built up before you started to use MYOB, go to Payroll, then Employees. Open the employee, then open Payroll details and the Leave tab. Enter the hours in the Balance adjustment column.

MYOB AccountRight

In AccountRight Plus and Premier, MYOB uses payroll categories instead of pay items. You need a wage category to pay the leave and an entitlement category to track it. You set them up from the Payroll command centre, under Payroll Categories.

The entitlement category uses the same percentages or hours a year. In the entitlement category, select Carry Entitlement Over to Next Year. Link the Long Service Leave wage category.

How to pay the leave

In MYOB, enter the hours that the employee takes in the Hours column of the long service leave wage pay item. The balance then reduces automatically. The base hourly or salary amount also reduces, so that you do not overpay the employee. In Xero, the employee can request the leave in Xero Me.

MYOB gives this instruction for pro rata leave on termination. On the final pay, enter the pro rata hours against the long service leave wage pay item. MYOB also says that the rules of your state or territory decide whether the employee is eligible and how to calculate the payment.

What the software does not do

Both help centres send you to the rules for your state. They do not apply these rules. Xero says that each state, each territory and some industries have their own legislation, and that you need to check the rules that apply. For employees whose hours vary, MYOB says that you need to calculate the accrual under the rules of their state.

Neither help article describes a setting that applies a qualifying period. The balance builds from the first pay, so it shows hours that the employee may not yet have the right to take. MYOB suggests one way to keep these hours off pay slips. Link employees to the leave pay item only when they have the right to the leave.

The software also does not decide pro rata entitlements when someone leaves. It does not decide which absences count as service, or the rate of pay for the leave. Each Act sets these rules.

Portable schemes are separate. If a portable scheme covers an employee, the scheme records their service and usually pays them. For more information, read our pro rata guide. For more information, read our guide to payouts when you leave. For more information, read how to calculate long service leave. For more information, read our guide to portable schemes.