Salaries and Wages Defined

For the purpose of calculating the 1.8% of salary component in casemix, salaries and wages are defined as the remuneration for an employee’s normal hours of work for the period calculated at the employee’s ordinary time rate of pay as used in the AASB 119 calculation. Remuneration includes:

• All on-going performance payments an employee receives in the normal course of their duty, and
• Any recreation, sick and special leave. 

Salaries and wages exclude any payments:

• For long service leave, or
• For travelling allowance, or
• For on-costs such as Workcover, superannuation, or
• Of a temporary nature of a reimbursement of expenditure incurred.

Salaries and Wages include both HSA and Non-HSA salaries and wages.

Additional Funding of Long Service Leave  

During 2008/09 DHS is providing additional funding of 1% to hospitals for LSL. With the reinstatement of funding through the debtor mechanism, the additional funding previously recorded as grants should now be reversed and be treated as a reduction of the debtor balance owed by DHS.

The accounting entry for the reversal of the additional 1% already received and recorded as revenue:

(For the reversal of cash received prior to the adoption of Circular 34/2008)

The accounting entry for the additional 1% after the adoption of Circular 34/2008:

(For the treatment of cash received after the adoption of Circular 34/2008)

Calculation and Accounting for LSL Debtor Balance

The LSL debtor to be raised is the difference between the AASB 119 calculated increase in the LSL liability for the year and the 1.8% of salaries and wages.

When the difference between the AASB 119 increase and the 1.8% of salaries and wages results in a net decrease in the LSL debtor, this decrease can only run down the cumulative debtor balance to zero and nothing below zero is to be recognised, that is, no DHS creditor balance required.  A net increase in a subsequent period will result in a LSL debtor being raised. 

Example A.1 – Increase in debtor Hospital XYZ began the 200X financial year with an opening LSL leave liability of $10 million and ended the year with LSL liability of $13 million. Year 200X     Opening liability balance   $10M LessCash paid in LSL for the year   $ 3M Remaining liability before current year liability reinstatement   $ 7M       AASB 119 calculated liability increase (i) $ 6M       Closing liability balance   $13M       Total Salaries and Wages Expense (ii) $222M 1.8% of Salaries and Wages expense (1.8% of (ii)) (iii) $ 4M       DHS Debtor to be raised (i) – (iii) $ 2M The accounting entries would be presented as follows: DR LSL Payable - Current/Non-current $ 3M CR Cash on Hand and Other Bank Accounts $ 3M       DR LSL Expense $ 6M CR LSL Payable - Current/Non-current $ 6M       DR Grants and Transfer Payments Receivable from Victorian Government Entities $ 2M CR Grants from GG Sector Departments – Within Portfolio $ 2M

Note: The debtor established by the non-cash revenue recognition is run down in future years when the LSL provision for the year is less than the 1.8% funding or by the claiming of cash revenue to match a cash expense greater than the amount recognised in Health Service Agreement cash budgets. 

Example A.2 – Decrease in debtor In 200Y, Hospital XYZ had an opening LSL leave liability of $13 million and ended the year with LSL liability of $8 million. Year 200Y     Opening liability balance   $13M LessCash paid in LSL for the year   $ 8M Remaining liability before current year liability reinstatement   $ 5M       AASB 119 calculated liability increase (i) $ 3M       Closing liability balance   $8M       Total Salaries and Wages Expense (ii) $222M 1.8% of Salaries and Wages expense (1.8% of (ii)) (iii) $ 4M       DHS Debtor to be raised (i) – (iii) ($ 1M) The accounting entries would be presented as follows: DR LSL Payable - Current/Non-current $ 8M CR Cash on Hand and Other Bank Accounts $ 8M       DR LSL expense $ 3M CR LSL Payable - Current/Non-current $ 3M       DR Grants from GG Sector Departments – Within Portfolio $ 1M CR Grants and Transfer Payments Receivable from Victorian Government Entities $ 1M If there was a reduction in the debtor balance of $3M instead of $1M, then the debtor balance of $2M recognised in 200X will be run down in full by $3M in 200Y. Where this occurs, agencies are required to set the debtor balance to zero and not recognise the creditor balance. Therefore, XYZ would be required to reduce the debtor balance by $2M, not $3M and recognise an expense of $2M as a reduction in revenue.  DR Grants from GG Sector Departments – Within Portfolio $ 2M CR Grants and Transfer Payments Receivable from Victorian Government Entities $ 2M

The following are recommended accounting entries along with the relevant Hospital Common Chart of Accounts (HCCOA) and Annual Financial Report (AFR) account codes, for entities to which this circular applies.

On recognition of non-cash services delivered:

Increase in debtor - arises when the increase in LSL provision for the year is more than the 1.8% of salaries included in casemix funding.

	HCCOA	AFR Account	AFR Account Description
DR	75600-75699	A23360	Grants and Transfer Payments Receivable from Victorian Government Entities
CR	56806-56899	A74500	Grants from GG Sector Departments – Within Portfolio

OR

Decrease in debtor - arises when the increase in LSL provision for the year is less than the 1.8% of salaries included in casemix funding.

	HCCOA	AFR Account	AFR Account Description
DR	56806-56899	A74500	Grants from GG Sector Departments – Within Portfolio
CR	75600-75699	A23360	Grants and Transfer Payments Receivable from Victorian Government Entities

Portability of Long Service Leave Relating to Transfer of Employee between Agencies to Which this Circular Applies

Where employees transfer between applicable agencies their entitlements will transfer with them.  However the agency from which the employee is transferring is not required to pay the new agency the entitlement that would have been otherwise paid to the employee.

Any increase or decrease in LSL provisions due to transfer of staff will be reflected in the net movement of LSL provisions of each agency and therefore will give rise to a corresponding increase or decrease in DHS debtor balance which will enable a claim for cash settlement if and when required.

DHS Information Requirements

DHS requires details of the liability calculation to establish reciprocal expense and creditor entries in the DHS financial statements. Details in the attached prescribed format are required by COB 7th working day of July. Late and/or incomplete and/or incorrect returns will NOT be accepted.

Data provided to DHS must be provided in the following pro-forma format (using the excel template below) with all information to enable processing of the DHS debtor balance:

Pro-forma for LSL Return LSL Liability       Opening Balance       Less Cash paid in LSL for the year                         - Calculated Increase/(Decrease) in Provision1   (i)   Closing Balance2                 -         Salaries & Wages Paid   (ii)   1.8% loading3   (iii)             -         DHS Debtor       Opening Balance at 1 July 2008 (as confirmed by DHS last year)             - Additional 1% payment                 - Debtor to be raised   (i) - (iii)             - Other4       Closing Balance at 30 June 2009                 -         Split of DHS Debtor Balance       Current       Non-Current       1 This is the aggregate of normal increase in entitlements, increase due to increase in award rates and changes due to bond/wage inflation adjustment. 2 Total LSL Provision at year end 3 Details of the total salaries are required to compare the 1.8% loading in the casemix payment to cash settlements made during the year. The total salaries expense figure excludes FBT, LSL, superannuation, WorkCover, termination and departure package payments. 4 Include any monies received for transferred employees’ LSL entitlements.

The proposed data source for the movement calculation is the agency's payroll system data, to be made available to DHS on request.

Last updated: 17 December, 2008
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