What is the proposal?

As a part of its campaign to deliver better working conditions for Australians, the Australian Labor Party (ALP or Labor) has announced a plan to work with state and territory governments, employers and unions to develop portable entitlement schemes for annual, sick and long service leave. The purpose of these schemes would be to allow workers to move various leave entitlements from one job to another – so those that would not otherwise be able to accumulate leave will be entitled to do so.

With the exception of brief mentions that any portable entitlement scheme may be for ‘Australians in insecure work’ and implemented through industry-wide schemes, at the time of writing the ALP has not published any further details on how the proposed scheme would work in practice. This leaves a number of important questions unanswered. What specific employers, employees or industries would be covered by the scheme? If the proposal is directed towards ‘Australians in insecure work’, who are these workers? How would a new portable entitlement scheme interact with existing laws, including those relating to casual employees and independent contractors? Is a portable entitlement scheme too complex? And ultimately, who would pay for it?

If the experience of existing portable entitlement schemes in industries such as construction and mining provides any lessons, it is that portable entitlement schemes are inherently complex and require careful consideration. It is therefore essential that any government seeking to implement new portable entitlement schemes works closely with stakeholders, and other leaders in the field, to ensure that stated policy objectives can be achieved without imposing undue operational and compliance costs.

What are the policy objectives?

The reference to ‘insecure work’ appears to point towards individuals who, because of the method of their engagement, are not able to accumulate the service required to qualify for most leave entitlements. Therefore, workers who may benefit from the proposed portable entitlement scheme include casual employees, contractors and gig-economy workers, employees engaged on a fixed term basis and labour hire workers. We have already seem some controversy in the campaign about the exact meaning of the term ‘insecure work’. The debate so far makes clear that each of these groups might be included.

Leader of the ALP, Anthony Albanese, and the ALP have variously pointed to the pandemic, rising levels of job insecurity, the casualisation of the workforce and the growth of the gig economy as reasons to implement changes across Australia’s industrial landscape. Indeed, a portable entitlement scheme may be one way to address the issue of workers engaged as casual employees or contractors not having access to paid leave entitlements during any future lockdowns or periods of mandatory isolation. This was recognised by the Select Committee on Job Security in its report ‘The Job Insecurity Report’. It has also been argued a portable entitlement scheme could bridge the gap between more stable, traditional industries where employees are often engaged on permanent bases, and those emerging and specialised industries.

Whilst the policy rationale to accommodate workers in insecure work is similar to that underlying the building and construction industry schemes, there is a fundamental difference. The inability of employees covered by those schemes to accumulate the relevant service, is not because of the manner of their engagement, but rather because of the finite nature of the projects involved – and that is a matter which is beyond the control of both parties.

How does the proposal change the status quo?

How the proposal might change the status quo will depend on what industries will be covered by the ALP’s proposal and the nature and design of any new portable entitlement scheme.

What industries will be affected?

In a speech delivered on 10 February 2021, Anthony Albanese said the Opposition’s plan to develop portable leave entitlements would not be realised through ‘unilateral’ legislation but instead on an industry-by-industry basis. Therefore, it appears that any new scheme would be progressively rolled out across certain industries. One suspects some of them are likely to be prioritised.

Given the policy rationale behind the ALP’s proposal, it is likely that industries with high instances of ‘insecure work’ will be among the first targeted. Whilst the ALP has not defined ‘insecure work’, the Victorian Government Submission to the Senate Select Committee on Job Security provides some guidance in its description of the characteristics associated with insecure work arrangements as including unpredictable and fluctuating pay, inferior rights and entitlements, limited or no access to paid leave, irregular and unpredictable working hours, and a ‘lack of any say’ over wages, conditions and work organisation. Workers in ‘insecure work’ are likely to be those engaged as independent contractors, casual employees and fixed term employees.

Industries likely to be among the first to be considered for a new portable entitlement scheme might include accommodation and food services, retail trade, arts and recreation and healthcare and social assistance. Another may be the education and training industry, given the National Tertiary Education Union has welcomed Labor’s proposal and argued that a majority of university employees are in ‘insecure work’.

What might the scheme look like?

In the absence of any detail in the policy, or in the debate to this point, we are left to examine the existing portable entitlement schemes. Given the language of ‘portable’, and ‘industry-wide’, that seems a logical point of reference. The existing schemes are run by various state governments across the construction, mining, community service and cleaning sectors. They do share many common features and typically involve:

  • the establishment of a corporation as the authority to collect contributions from employers and administer the scheme;
  • the imposition of a requirement on employers within the scope of the scheme to make regular, usually quarterly, contributions to the authority based on a percentage of their payroll;
  • employees within the scheme have an ‘account’ with the authority to which is credited their entitlement to leave as it accrues by virtue of their service within the industry concerned;
  • the accumulation of an employee’s service with a number of employers who come within the scope of the scheme;
  • the taking of leave which is paid for by the employer at the time; and
  • the employer applying for a refund from the fund of the amount paid to the employee for that leave.

Other models may include the use of an approved deposit fund nominated by individual employers or existing superannuation providers.

The authorities established under the existing schemes have been afforded significant powers to carry out their duties, including powers to compel the production of documents to allow them to audit employer records and levy notices requiring the making of contributions.

What are the consequences?

The potential consequences of implementing new, industry-specific portable entitlement schemes are wide-ranging.

Who will pay for it?

Perhaps the most important question regarding a new portable entitlement scheme is – who will pay for it? The costs associated with any new scheme will not only include additional payments to cover employee entitlements, but also the authorities running costs and costs associated with increased compliance and reporting for business.

Whilst this will inevitably be high on the agenda in the promised consultations, the most likely scenario is that employers will bear this burden, akin to existing state-based schemes. As a result, the cost of the levies are likely to be passed onto those employers customers. For example, portable long service leave within the construction industry in New South Wales has generally been funded by a levy on construction projects. Alternatively, employers may choose to pass these additional costs onto employees in the form of reduced salaries, in the same way as many have funded increases to compulsory superannuation contributions.

Addressing this policy proposal, former Industrial Relations Minister Christian Porter estimated that the cost of extending annual, sick and long service leave to Australia’s 2.3 million casual workers and 1 million contractors will amount to approximately A$20.3 billion each year. By comparison, the Ai Group in its submission to the Select Committee on Job Security estimated that the implementation of a national portable long service leave scheme would cost Australian businesses over A$16 billion per year, with the cost of portable annual leave and personal/carer’s leave being even greater. That said, the exact cost will be unclear until the outcome of the promised consultations is known. In this regard, Shadow Industrial Relations Minister Tony Burke responded to Mr Porter stating that his calculations are unlikely to reflect true values given the proposal will apply only to certain industries ‘where it might be appropriate for portable entitlements to be extended’. But no specific industries were identified.

Is a portable entitlement scheme too complex?

Experience in the industries that currently have a portable entitlement scheme for long service leave demonstrates that these schemes are inherently complex.

A particular point of complexity is the determination of whether a business falls within the particular industry covered by the scheme. This was identified as a ‘key issue’ in KPMG’s Independent Review of the Coal Mining Industry (Long Service Leave Funding) Scheme (KPMG Report), which also identified that ongoing compliance issues experienced were largely as a result of unresolved coverage issues. This complexity is only exacerbated by the differences in definitions of industries across states and territories.

Consistent with the recommendations in the KPMG Report, any terms of a portable entitlement scheme relating to coverage must provide certainty. Otherwise, it is highly likely that significant litigation will arise that tests the boundaries of any portable entitlement scheme both at the time of implementing any new scheme and in the future when employers discover their employees were in fact covered. This latter scenario has played out for the existing constructions industry schemes as well, where business models evolve and change over time. So where a business might extend its operations beyond the construction industry, there is inherent uncertainty about the ongoing requirement to participate in the scheme.

How would a portable entitlement scheme interact with existing laws?

Another major issue is how any new portable entitlement scheme would interact with existing laws and legal structures, in particular the treatment of casual employees and independent contractors.

Under the existing award-based system, casual employees are entitled to a loading (usually 25%) in lieu of, or as a form of compensation for, not receiving most leave entitlements. If the ALP’s portable entitlement scheme were to apply to casual employees as ‘insecure workers’ – and extend to those casual employees annual, sick and long service leave entitlements – the very reason for paying the loading would cease to exist. In such a case it seems logical that either the loading ought not to be paid at all, or the rationale behind it should be fundamentally re-examined. Perhaps a loading could be justified on the basis of compensating a worker for not being afforded a firm advance commitment to continuing and indefinite work, but then the question whether it should still be compensated at the same level would arise.

On this issue, Mr Porter has said any portable entitlement scheme may be partly funded by removing the casual loading in casual employee wages. He calculated that doing so would cost casual employees an average of A$153 per week, or almost A$8000 per year.

Other commentators have noted that applying a portable entitlement scheme to casual employees is ‘conceptually messy’, particularly against the backdrop of debates around the double-dipping of entitlements. In a similar way, independent contractors are not presently entitled to forms of leave and, given it is one of the indicia of a contractor arrangement, workers often receive higher net payments as independent contractors than they would if they were employees. Should the ALP’s portable entitlement scheme apply to independent contractors this could result in a review of how much independent contractors are paid. The market price for their labour would inevitably be seriously impacted.

What other issues may be associated with a portable entitlement scheme?

The Dissenting Report by Liberal and National Senators prepared for the Select Committee on Job Security highlighted additional concerns associated with portable entitlement schemes. These included ‘the extensive employment of union-linked persons, significant donations of money to unions, and so-called entitlements only being paid out at the discretion of a trustee, rather than by any entitlement at law, without being subject to merits and legal review in the case of a dispute’.

Conclusion

Whilst the institution of new portable entitlement schemes may benefit ‘insecure workers’, given the complexity of these schemes and the potential for them to have a significant impact on businesses and existing legal structures, it is essential that any government seeking to implement a new portable entitlement scheme works closely with stakeholders to determine whether these schemes are appropriate and, if so, how they should be designed to mitigate against economic and legal risk.