The Paid Parental Leave Act 2010 ("Act") and Paid Parental Leave (Consequential) Amendment Act 2010, provide a government funded scheme for paid parental leave under which employees may be entitled to receive up to 18 weeks paid parental leave following the birth of their child or placement of an adopted child after 1 January 2011.
The right to paid parental leave under the Act supplements any contractual entitlement to paid parental leave, and entitlements under the Fair Work Act 2009 (Cth), to:
- unpaid parental leave;
- extended unpaid parental leave; and
- flexible working arrangements.
The Act provides that eligible care-givers of a child born or adopted and placed after 1 January 2011 will be entitled to a payment of $570 per week (as adjusted from time to time in line with minimum wage orders) for a period of up to 18 weeks during the first year of the child's life or the first year after placement of the adopted child1.
There are numerous rules around applying for and making a claim, the entitlement/eligibility to a payment, the payment of a benefit, and the cessation of such payment.
This summary provides an overview of the legislation governing paid parental leave and what an employer should do to prepare for and comply with the paid parental leave legislation.
2. Application or Claim
An application and claim ("Application") for paid parental leave may be made by the primary care-giver, secondary care-giver or such other person as determined by the Secretary of the Family Assistance Office ("FAO") as having entitlement to such payments (for example, grandparents). No Application can be made by a secondary or other care-giver unless the primary care-giver has made an Application.
The Application can be lodged from 97 days before the birth of a child up until the child's first birthday. However, the entitlement expires on the child's first birthday regardless of whether the applicant has received eighteen weeks of payments.
All Applications must be in the prescribed form and have the necessary documentation attached, including verification of the child's birth.
To be eligible for the parental leave payment the employee must:
- have a minimum of 12 months continuous service. This can include casual employees who have worked on a regular and systematic basis for this period and who have a reasonable expectation of ongoing work;
- lodge an application in the approved form with the FAO;
- provide details of their employer or employment details;
- satisfy the work test, being that they worked 330 hours in the 392 days immediately before the child was born;
- satisfy the income test, being that their adjustable taxable income for the previous income year prior to birth was less than $150,0002. This amount will be indexed from 1 July 2012;
- satisfy the Australian residency test, being that they are an Australian resident or in a special category of visa holders;
- provide details of the date that payment is to commence;
- provide their tax file number;
- confirm that they will be the child‟s primary care-giver;
- confirm that they have not returned to work. As this is a continuous payment entitlement, the applicant will lose eligibility for the parental leave payment if they return to work and undertake one hour or more of paid work, other than for a permissible purpose (as detailed in the Act); and
- not be entitled to a baby bonus on the day of the application.
The parental leave payment will be made by way of instalments of $570 per week for a period of up to 18 weeks during the first year of the child's life. The employee is entitled to nominate the start date of the payments as the date of birth or a later date ("commencement date").
Where the child is born before 1 July 2011, the FAO must make the parental leave payments to the employee, unless the employer elects in writing to make the payments on behalf of the Commonwealth.
For all births after 1 July 2011, the primary obligation will be on the employer to make the payment to the employee on behalf of the Commonwealth. The employer will be notified of this obligation by way of an "Employer Determination Order" from the FAO, which will set out the payment details that must be made to the employee. The Commonwealth Government will deposit the funds for the payment into the employer's bank account.
The only allowable deductions from any instalment payment are PAYG withholding, child support deductions, and any deductions authorised by the employee. This obligation is similar to that under section 324 of the Fair Work Act 2009, which regulates deductions from the employee's wages/salaries.
The introduction of the government funded scheme does not mean that employers are no longer required to make any paid parental leave payments agreed to in an employee's contract of employment, an enterprise agreement, company policy, or other agreement.
If the employer has agreed contractually (including in an Enterprise Agreement) to provide such a benefit, the employee cannot unilaterally take that right/benefit away without being exposed to a claim for breach of the contract or enterprise agreement. Caution should be exercised where the right or entitlement exists under the employer's policies.
5. Employer Obligation To Make Payments
Where the employer agrees to make the payments (pre July 2011)
or is required by an 'Employer Determination Order' to make
the payments (post July 2011), it must provide details of its bank
account and pay cycle to the FAO within 14 days. The 'Employer
Determination Order' will generally only be made where the
employee is entitled to more than eight weeks of payments.
The employer is only required to make a payment after it has received the funds from the FAO, and after any allowable or required deductions. If the commencement date for the payments starts before the employer receives the funds, the employee will have to make a back payment to the employee on receipt of the funds.
The employer must withhold tax from the parental leave payment under usual PAYG requirements, and must include the parental leave payments in the total amounts of annual and part-year payment summaries.
Superannuation is not payable on the parental leave payments, nor will the payments need to be taken into consideration for workers compensation declarations or payroll tax declarations. Employers should consult with their insurance brokers and accountants to confirm there will be no other obligations as a result of having to make the payment.
Employees will not accrue leave while on paid parental leave notwithstanding that their service will be considered continuous.
Subject to receiving the funds from the FAO the Employer is required to make payment of any future instalments in accordance with the employees' normal pay cycle, which can be no greater than monthly.
Employers will also be obliged to give employees details of the payments (at intervals set out in the yet to be released rules), and will be required to keep records of the payment for seven years.
The employee can seek a review of an 'Employer Determination Order'. This will generally be where the employer disputes the obligation to make the payment, including where the person is not an employee.
If the employer fails to make any payment it has agreed to make (for births prior to 1 July 2011) or it is obliged to make pursuant to an 'Employer Determination Order' (for births post 1 July 2011), and has not sought a review of the obligation to pay, it will be exposed to a civil penalty and/or a pecuniary penalty for the non-compliance.
6. Employer Obligations Generally
There is an underlying obligation on the employer, similar to that of the employee, to notify the FAO when there is a change of circumstances. The employer is required to notify the FAO of changes to:
- its bank details;
- the instalment date;
- the employer ceasing to trade;
- the employee returning to work;
- the employee no longer being an employee of the employer; and
- a number of other procedural matters set out in section 82 of the Act.
Failure to notify the FAO of these changes will expose the employer to a penalty of up to 60 units ($6,600) and an additional pecuniary penalty of up to $33,000 in the case of a corporation. Sections 146 and 147 of the Act set out the penalty provisions for noncompliance. This can include penalties for:
- making an unauthorised deduction;
- failure to make payments in accordance with an Employer Determination Order;
- failure to give the employee a record of the payment;
- failing to keep records of payments for seven years; and
- failing to notify the FAO of certain events including the applicant returning to work or ceasing to be an employee.
7. Compliance and Enforcement
The FAO and/or the Fair Work Ombudsman have power under the Act to investigate and gather documents regarding compliance and/or alleged breaches. If an employee receives a written notice, the person identified in the notice must provide the requested documents or attend to "appear and answer questions". Failure to do so can expose the person identified in the notice to a penalty of up to six months imprisonment.
While significant pecuniary penalties can be imposed by the Federal Court of Australia or the Federal Magistrates Court of Australia pursuant to section 147 of the Act, the FAO and the Fair Work Ombudsman do have discretion to instead issue an infringement notice. It is likely this will be exercised in the case of minor infringements.
Paid parental leave, to assist parents during a time when many families struggle to make ends meet, is now a reality for all Australians. There will doubtless be some confusion while teething problems are worked out, particularly for those organisations which already provided some form of paid parental leave. July 2011 may also be a second stage at which employers will need to take particular care, as the obligation to make payments passes from the government to employers. Employers will need to review their payroll processes and policies to ensure compliance both in the immediate transitional period, and again in July 2011.
1 Reference in this summary to birth of a child and date of birth of the child means also adoption of a child and the placement of an adopted child.
2 The adjustable taxable income includes the person‟s taxable income, reportable fringe benefits and reportable superannuation contributions.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.