Hey All, Just wanted to throw out the idea of cashing out Long Service Leave to invest the money? Having been trying to think about the pros and cons of doing this purely from a financial standpoint. Some of my thoughts: LSL value is attached to your current salary so it becomes more valuable the higher your salary is. So obviously if you are expecting a significant pay increase it doesn’t make much sense. If wage growth is however stagnate then you can likely get higher returns than the standard inflation. You will get highly taxed if taken as a lump sum. Interested to know if/how this can be mitigated? I don’t believe I’ll be made redundant before I leave on my own accord. My LSL value I would say is around 25k pre-tax in the 37 cent bracket. If taken and immediately invested and left you know it’s going directly into an income producing asset. This then starts the compounding process. That versus potentially taking the leave adhoc and “wasting” (don’t get me wrong, a well earned rest has its own value). I think I will look to change jobs in the next 1-2 years but won’t take a long break. 4 weeks of leave a year is more than enough for me. I know it’s probably too hard to answer given the unknowns and variables but thought I would throw it out their. My thought pattern being take it out and putting into an indexed fund.
LSL cashing provisions are limited by some states. eg It is strictly prohibited in Vic. Some awards etc limit the amount or permit a limited sum. That said if the workplace choice arises to resign and you have a entitlement then it may be paid out as a entitlement. I have seen people take voluntary redundancy and been cashed out significant sums. $25K isnt what I call significant. A significant sum is something that could be said to extinguish all debt etc. They have then found finding work takes a LOT longer than planned in their age group, career choice etc. A $25K amounts really has rather trivial outcomes until the return to work is confirmed. eg After tax (39%!!) the net amount of $15,250 is available. At best if repaid off debt the annual saving is $686 in a full year but the value then compounds in successive years. But if you had credit card debt of $15K then the card repaymnet could save cashflow of as much as $5400 per annum (3% per month) enabling the $15K card debt to convert to $15K of savings in just three years. ie a $30K turnaround. Investment in any market needs to consider when the markets will correct and wipe out a portion of the capital. Super could be a strategy too. Low tax rate on earnings can compound. Its often wise to deposit proceeds of any redundancy or termination into a offset to ensure the cash proceeds stay available until AFTER a new job is obtained and then a more permanent choice made. The choice could even include a super pension strategy at age 60+
Hey Paul, Thanks for such a detailed response. I had no idea in Victoria I would be unable to cash out LSL so I think it becomes a nill discussion. Are you suggesting though the LSL amount after tax would be different depending on the way in which you leave your employer? Simply resigning or being made voluntary redundant?
Hmm, literally exchanging time for money? Each to their own but my feeling is I can always make more money but I have a finite amount of days in my life, I would rather take those days off work and spend the time in some personally rewarding way. Each to their own though, maybe you love your job, get enough annual leave already or are nearing retirement?
No, last I looked into it, it is taxed at your marginal rate when they pay you. If you do not earn much income in the remainder of that financial year, and your tax payable correspondingly decreases, you will get a tax refund of any over payment after your tax return is lodged. See: Lump Sum Payments on Termination of Employment
No. Statutory entitlements cannot be converted into a bona fide redundancy payment for example. Statutory entitlements are a element of ordinary taxable income unless paid as a death benefit. Withholding from unused leave payments on termination of employment I dont think harming yourself is a great tax strategy.
@albanga i know someone who recently cashed out their LSL in Victoria, no idea if it's 100% legal, but he did it no questions asked. I have thought about it, probably have a similar amount to you but have decided it should a nice back up to have their if things don't go as planned, major illness/lost job etc. Also I know once taken it would just disappear into the rest of my finances and it's nice knowing that if I wake up one day and absolutely hate my job I can leave and have a good amount of time before I have to panic, a sense of freedom I suppose.
Its prohibited in Vic and the employer is subject to a monetary penalty and also criminal conviction. The onus is on a employer to check before making such agreements. A simple google enquiry is sufficient in most cases to avoid the concern. Vic - prohibited How long service leave can be taken NSW - prohibited FAQs QLD - Limited permissions. Based on award OR a order given by the Industrial relations Commission. Transferring, taking and cashing in long service leave in Queensland | Business Queensland SA - Permitted if agreed in writing https://www.safework.sa.gov.au/law-compliance/compliance-rights/wages-conditions/long-service-leave WA - Permitted if agreed in writing for accrued entitlements only https://www.commerce.wa.gov.au/labour-relations/long-service-leave-0 ACT - Prohibited https://www.legislation.act.gov.au/View/a/1976-27/current/PDF/1976-27.PDF NT - Prohibited https://nt.gov.au/employ/for-employees-in-nt/long-service-leave Some limited instances of pre-2010 modern Federal awards under the Fair Work Act may prevail over some state provisions but pre-2010 awards generally will not override state law but may be more generous to have been approved at that time. Some portable schemes under state laws exist in some industries (ie construction). These schemes tend to seek employer funding and centralise the accrual and claiming. Their rules are not governed by the LSL Act but seek to replicate them and the scheme will administer payments. Many do allow cashing (as such) as that is not connected with paid work under the method of the scheme. eg The scheme pays you to take leave and has no test to determine you didnt also work.
My work does have 5 weeks annual leave (you get an extra week after 1 years service). And also very flexible work from home arrangements. I still take at a minimum one overseas holiday every year without fail and lucky enough to have a mother in-law with a beach house for weekend getaways. I don’t disagree with you and was more just trying to get some more info around bounce around some ideas. Whilst the idea of cashing out 12 weeks of time sounds a lot what about if the cash out was used for growing assets that with compounding allowed you to achieve your retirement goals earlier. What I mean by that is it’s current value is 60 days of time. If however invested into say a share dividend reinvestment portfolio then after 20 years the portfolio value might be say 130k (Share experts feel free to chime in as I’m using a very basic online calculator! Haha). Well it could then be converted into almost 2 years of time in retirement assuming spreading the value over 2 years to be more tax effective.
