Question

On July 2020, Sotoma Pty Ltd noticed that a number of its employees have been with the company for a number of years including some who have actually been working for more than 10 years. The company has always provided annual leave and sick leave to its employees. However, our accounting team is not sure whether these employees are entitled to any other employee benefits. It would be much appreciated if you could give the accounting team some clarification on this matter and how to deal with this in our accounts.

Answer 1

Sotoma Pty Ltd has been giving annual leave and sick leave to its employees.But the employees of Sotoma Pty Ltd are also entitled, as per the laws in Australia, to some other benefits also. Here is a discussion about the important benefits that the Sotoma Pty Ltd accounting team should take into consideration and deal with them in their accounts:

1. Superannuation benefit: Providing superannuation benefit to the employees means that the employees should have an assured pension after their retirement. Many of the employees of Sotoma Pty Ltd have been working for it for more than 10 years now and the company has not provided for their pension on their superannuation which it must provide for now. As per law, the employers are required to contribute at least 9% of the ordinary earnings of their employees for providing them pension on retirement. This amount should be credited to a Superannuation Fund, also called Default Fund. The accounting team of Sotoma Pty Ltd should assess the amount required to be provided for ensuring pension income of all its employees and create a Superannuation Fund.

However, since the amount required for creating a Superannuation Fund is expected to be large as the company has never provided for meeting this requirement, the accounting team will need to make a plan for creating the fund by contributing towards the past liability in a phased installment manner. The best way for the accounting team of Sotoma Pty Ltd would however, be to buy defined pension deferred annuity policies from an insurance company to provide the required amount of pension on superannuation to each of its employees. The nature of defined pension deferred annuity policy is such that the insurance company will automatically factor the liability for payment of pension for the past years too, into the premium payable.

2. Long Service leave: The employees working for a company for a very long time are also entitled to Long Service Leave which is a paid leave, The legal provisions in respect of Long Service Leave may differ from state to state. For instance, in New South Wales, employees working for the same employer for 10 years or more are entitled to two month's paid leave. Sotoma Pty Ltd accounting team should work out and create a provision for Long Service Leave in respect of employees who have been working for more than 10 years, (or lesser period, if the legal requirements of the State the company is located in provide otherwise)

3. Paid Parental Leave: Employees are also entitled to paid parental leave (Maternity Leave for mothers/ Paternity Leave for dads/ Adoption Leave for adoptive parents). The accounting team of Sotoma Pty Ltd should assess the provisions required to be created for meeting this liabilty.