Date posted: 17/09/2020

Accounting for regular and systematic casual employees

A joint guide with the AICD and CPA Australia on how to account for entitlements that may arise for regular and systematic casual employees

In brief

  • The Australian Federal Court handed down a decision on employment classification and leave entitlements in WorkPac Pty Ltd v Rossato
  • Certain 'casuals' may be seen as permanent, with retroactive rights linked to permanent employment
  • Financial statements are affected when legal circumstances from the cases apply

We have issued a joint guide with the AICD and CPA Australia on how to account for entitlements of likely misclassified casual employees. Recently, the full Federal Court of Australia handed down a decision about casual employment classification and leave entitlements in WorkPac Pty Ltd v Rossato. This case, along with the 2018 case of WorkPac Pty Ltd vs Skene, dealt with the circumstances in which employees engaged as casuals may be reclassified as permanent employees, giving rise to a right to retroactively seek entitlements attached to permanent employment, including paid leave benefits. These cases also dealt with the question of whether casual loading paid to the reclassified employees could be offset against historical leave accruals arising out of reclassification.

In both cases, it was found that, employees who were currently regarded by an employer as ‘casual,’ but whose employment circumstances otherwise reflected key characteristics of a ‘permanent’ employee, should not have been treated as ‘casual.’ The Court also found that the offsetting provisions that the employer sought to allow them to net casual loading against unused leave entitlements (such as paid annual, public holiday, personal/carer’s and compassionate leave) could not be used to offset historical liabilities.

“For balance dates ending 30 June 2020 and thereafter, affected employers may have an additional remuneration obligation towards certain casual employees”

Exposure in respect of employees who were engaged in similar circumstances to these court decisions, may extend to a claim for accruals in respect of continuous service for current employees (or otherwise for up to six years following cessation of any employment). As a result, for balance dates ending 30 June 2020 and thereafter, affected employers may have an additional remuneration obligation towards certain casual employees. Employers that have or had casual employees who have been engaged in a manner providing for a firm advance commitment of employment (i.e. stable, regular and predictable employment), particularly over an extended period of time, may be at risk of exposure to casual 'misclassification costs.' 

Accounting and financial reporting implications

The entity’s financial statements are affected when:

  • Legal circumstances from the above cases probably apply (i.e. the entity probably employs or has employed regular and systematic casual employees), or
  • Legal circumstances from the above cases possibly (but not probably) apply (i.e. the entity possibly employs or has employed regular and systematic casual employees).

The entity’s financial statements are unaffected when clearly none of the facts/principles apply (e.g. the entity did not employ casuals, or the prospects of the entity employing or having employed regular and systematic casual employees is remote).

Some benefits may be required by reference to legal minimums or industry awards and others by reference to the entity’s policies (which may result in constructive obligations). For each type of benefit, affected entities may have to:

  • Recognise a liability (an accrual or provision) and related expense, or
  • Disclose a contingent liability.

The Australian Accounting Standards that may be relevant in considering the accounting implications of the case law are:

  • AASB 119 Employee Benefits (AASB 119)
  • AASB 137 Provisions, Contingent Liabilities and Contingent Assets (AASB 137).

In our joint guide, we discuss the legal considerations and summarise the accounting considerations. It also features a brief legal analysis of the case law by law firm Clayton Utz.

Download the guide

Download our joint guide with the AICD and CPA Australia on how to account for entitlements of misclassified casual employees

Download guide

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