The Australian government will deliver Australia's first national Paid Parental Leave (PPL) scheme from 1 January 2011. It will provide eligible working parents with 18 weeks of pay at the weekly rate of the national minimum wage. The PPL scheme will be fully funded by the Australian government. The Paid Parental Leave Bill 2010 (PPL Bill) passed the Senate on 17 June 2010.
The Senate made some significant amendments to address how employers incorporate the government funded parental leave payments into any existing PPL provisions. Whilst these changes and the final form of the PPL Bill are yet to receive Royal Assent, the passage of the PPL Bill into law seems to be an inevitable outcome for Australian families.
The PPL Bill
There are certain entitlement and eligibility rules attaching to the PPL scheme. Parents may be entitled to 18 weeks of government-funded parental leave paid at the national minimum wage ($569.90 from 1 July 2010). To be eligible, a parent must:
- satisfy the work test (which is calculated in accordance with a method statement set out in the PPL Bill)
- satisfy the income test (i.e. the person's adjusted taxable income must be less than $150,000 annually, which is indexed)
- satisfy the Australian residency test
- be the child's primary care giver
- have not returned to work.
Parents are not entitled to receive both the government's baby bonus and PPL in relation to the birth of the same child. If there are multiple births (i.e. twins), an employee may be entitled to PPL for one child and the baby bonus for the other(s). The parental leave payment must be received within the first 12 months after the date of birth or placement for adoption.
Employers will only be responsible for passing on the parental leave pay to employees who intend to return to work. Parents who resign, but meet the eligibility criteria, will be paid directly by the Family Assistance Office.
What changes did the Senate make?
In passing the PPL Bill, the Senate included a number of amendments. In summary, these:
- modified the work test to address situations of premature birth or pregnancy related complications or illness
- clarified that an employer's obligation to provide an employee with PPL is separate and additional to any other obligation the employer has with respect to paid parental leave.
Amendment number 2 above is significant for Australian employers. This key amendment requires employers to provide the statutory entitlement - 18 weeks PPL, paid at the national minimum wage - in addition to any other obligation they have to their employees. Accordingly, an employer will not be allowed to use the government PPL scheme to offset PPL benefits they have or are required to provide to employees under industrial instruments such as enterprise agreements, or other laws.
For example, if an employee accesses an existing entitlement to PPL under a law or an industrial instrument (including an employment contract), then an employer will be required to pay the employee's full paid leave entitlement in addition to the instalments of government-funded PPL.
Similarly, if an employee elects to take paid annual leave or long service leave during the same period that the employee is receiving instalments of parental leave pay from their employer, the employer is obliged to pay the full paid leave entitlement as well as the government-funded PPL.
Policy entitlements are different...
An important exclusion to the operation of amendment number 2 above was clarified during the Senate debate. Where an employer's PPL policy is applied in a purely discretionary way - that is, it is not part of the employee's contract of employment or industrial instrument - then the Senate amendment at paragraph 2 above will not extend to PPL arrangements contained in that non-binding policy.
This means that employers will not generally be prohibited from using the government scheme to offset paid parental leave benefits contained in a discretionary policy document. Further, the PPL Bill will not impact on an employer's ability to vary its own PPL policy, as long as that policy is not incorporated into an employee's contract of employment, enterprise agreement or other workplace agreement.
Implications for employers
The PPL Scheme will be available to employees from 1 January 2011. Whilst it is an employee's responsibility to apply for PPL, employers must provide it through their payroll system from 1 July 2011. Parental leave pay will be treated in the same way as other taxable income. Employers will need to ensure that the appropriate taxation component is deducted from instalments. In addition, records of instalment payments must be kept by an employer for seven years.
Employees who announce their pregnancies now are likely to be the first wave of parents entitled to the PPL scheme. Employers should commence reviewing the status of existing PPL entitlements within the business, including existing policy arrangements that currently apply to employee's on parental leave. Employers are recommended to seek clarification about how any contractual or policy entitlement interacts with the government funded PPL scheme. This will assist employers to place themselves in the best possible position to communicate the approach of the business to employees.
Employers may consider whether it is possible to make changes to discretionary policy benefits (for example, amending the policy so that the entitlement to PPL is subject only to the government funded scheme, or increasing the period of PPL to 18 weeks inclusive of any government funded payments.) Employers are recommended to seek advice prior to amending any policies that are legally binding as part of or incorporated in an employment contract, enterprise agreement or other workplace agreement.
We recommend that employers become acquainted with the application process through the Family Assistance Office (http://www.familyassist.gov.au) so that they can communicate information to its employees if required.
Disclaimer: The PPL Bill has not received Royal Assent as at the date of this publication.
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This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances.