07 Oct 2010

Preparing for the Paid Parental Leave Scheme

by Joe Catanzariti, Cilla Robinson

Employers should be reviewing their payroll systems and processes. employment contracts and industrial instruments to get ready for the Paid Parental Leave Scheme.

Employers should take note of the passing of the Paid Parental Leave Act 2010 which introduces an unprecedented government-funded Paid Parental Leave Scheme within Australia and will impose a number of additional employer obligations and administrative costs.

What is the Scheme?

Applications for paid parental leave may be made from 1 October 2010 and the Scheme will provide a maximum entitlement of 18 weeks' paid parental leave at the National Minimum Wage (currently $569.90).

Paid parental leave will be available to primary caregivers and adoptive parents who have a baby or adopt a child on or after 1 January 2011, and who meet the requisite work test, income test and residency requirements.

More than one person may take a period of paid parental leave in relation to the same child, so long as the total period of paid leave in relation to that child does not exceed 18 weeks.

Notably, the Scheme does not provide a leave entitlement, but complements parents' entitlements to leave, such as their entitlement to unpaid parental leave, under the National Employment Standards.

Employees will be required to apply for paid parental leave through the Family Assistance Office (FAO) and can do so up to three months before the expected birth date.

When does the Scheme start?

The Scheme will be phased in over six months.

Between 1 January 2011 and 1 July 2011, employers with employees' approval may opt to provide paid parental leave to long-term employees whom are employees who have been employed for 12 months or longer prior to the expected birth date.

The first claims will be lodged from 1 October 2010 for children expected to be born or adopted on 1 January 2011. If the employer decides not to opt in, the FAO will provide the paid parental leave pay during the phase-in period.

Importantly, from 1 July 2011, employers will be obliged to provide paid parental leave to a long-term employee, following notification by the FAO. Employers will be required to pay long-term employees who have a child born or adopted on or after 1 July 2011.

The Scheme also imposes a number of administrative obligations on employers. Employers under the Scheme will be required to:

  • provide required details to the FAO such as the employer's bank account details and the employee's pay cycle details, and notify the FAO if these details change;
  • provide paid parental leave in accordance with the employee's normal pay cycle;
  • withhold tax under the usual PAYG withholding arrangements and include parental leave pay in the total amounts on the employee's annual and part-year payment summary;
  • provide the employee with a record of their payment, for example, through a payslip;
  • keep written financial records of funds received from the FAO and of the payment provided to an employee;
  • notify the FAO:
  • if/when an employee returns to work;
  • if/when an employee is no longer engaged with the employer;
  • if the employer has been advanced an incorrect funding amount, or if they are unable to provide the payment to the employee; and
  • in advance, if they are ceasing to trade, selling the business, transferring ownership or merging with another business; and
  • return any unpaid funds to the FAO.

Under the Scheme, funds for paid parental leave will be provided to the employer by the FAO and employers will not have to provide paid parental leave until they have received sufficient funding.

What about voluntary parental leave schemes?

The current Scheme is intended to complement voluntary paid parental leave schemes and current entitlements to unpaid parental leave under the National Employment Standards.

Consequently, employers will need to carefully consider whether they wish to offset any existing paid parental leave entitlements provided under a voluntary scheme against the entitlements provided under the Scheme.

Key issues for employers

Employers should begin considering how their business will operate under the new Scheme.

In particular, employers should consider:

  • whether revisions to their payroll systems and processes will be necessary in order to comply with the administrative obligations under the Scheme;
  • whether staff employment contracts and policies require amendment;
  • reviewing any existing industrial instruments that provide for paid parental leave given the advent of the new Government Scheme.

Thanks to Emily Gothman for her help in writing this article.

This article was written when Joe was a partner at Clayton Utz and does not necessarily reflect his views as Vice-President of the Fair Work Commission.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.