Statutory Paid Parental Leave: What does it mean for employers?

What is Paid Parental Leave?

The Paid Parental Leave (PPL) scheme, which becomes fully operational on 1 July 2011, entitles primary carers of children born or adopted after 1 January 2011 to receive up to 18 weeks pay at the national minimum wage, less applicable tax. The PPL scheme is not a leave entitlement, but operates alongside the existing parental leave entitlements under the Fair Work Act 2009 (FW Act). The national minimum wage is currently $569.90 per week (before tax), with a new minimum wage of $589.30 per week scheduled to come into operation on 1 July 2011.

The PPL scheme is government funded and currently administered by the Family Assistance Office (FAO) and Centrelink. However, as of 1 July 2011, employers will become responsible for processing PPL payments to certain eligible employees through their payroll systems. If they wish, employers may 'opt in' to paying PPL to eligible employees prior to 1 July 2011, although there is no obligation to do so.

Who is entitled to PPL?

PPL will be available to an employee who is the primary carer of a child born/adopted on or after 1 January 2011, and:

• is an Australian resident;
• meets the PPL work test. Generally, employees must have worked at least 10 of the 13 months prior to birth/adoption, totalling at least 330 worked hours, with no more than an 8 week gap between two consecutive working days; and
• meets the PPL income test – currently, an individual adjusted taxable income of $150,000 or less in the financial year prior to the earlier of the date of birth/adoption or date of PPL claim.

What is the role of employers in the PPL scheme?

Employees can lodge an application for PPL to the FAO up to three months prior to the expected birth or adoption date. The FAO will make a determination as to the employee's eligibility, and inform Centrelink of the outcome. Where the employee has been working for the employer for less than 12 months prior to the expected birth or placement date, and/or the employee is eligible for less than 8 weeks of PPL, the employer will be given the option of administering PPL. Alternatively, the FAO will provide the employee with the payments directly.

However, in all other cases of eligibility (where the child will be born or adopted after 1 July 2011), Centrelink will provide the employer with notice of their obligation to provide PPL. Centrelink will then forward funds to the employer in a manner to be agreed, and the employer will be required to make the PPL payments to the eligible employee.

What are the obligations of employers?

Employers are required to follow ordinary, correct payroll procedures in providing PPL. The amounts are paid in accordance with the employee's usual pay cycle for the duration of the PPL period, withholding Pay As You Go (PAYG) amounts (although no superannuation is payable). Employers should also provide payslips to employees which clearly record PPL payments, and record the movement of all funds received from Centrelink. There are also notification requirements (see Step-by-Step Guide).

Employees can only receive PPL during a continuous period of leave. However, they may attend work on a paid basis for up to 10 days during the PPL leave period in order to 'keep in touch' with the workplace (e.g. to attend training or a conference). These days may affect an employee's unpaid leave entitlements under the FW Act, although an amendment to the Act to resolve this discrepancy is anticipated.

PPL does not affect the obligation of employers to provide parental leave payments pursuant to an industrial instrument or contract of employment, and care should be taken in amending parental leave policies to reduce the amount of parental leave that employees will receive. Potentially, a unilateral amendment to any such right could lead to a breach of contract claim.

Do entitlements accrue during a period of receiving PPL?

The receipt of PPL during a period of leave does not make it 'paid leave' for the purposes of accruing entitlements, such as annual leave. However, entitlements may still accrue where the PPL payments coincide with a qualifying period of leave, such as a period of paid parental leave pursuant to an employment contract or internal parental leave policy.

Recommended Steps for Employers

If they have not already done so, employers should pre-register for the PPL scheme (see Step-by-Step Guide) and use the remainder of the interim period to develop a clear understanding of their obligations and the impact on any existing workplace arrangements.

We further recommend that employers:

• review their payroll systems, implementing any necessary changes or updates;
• review their current parental leave policies to ensure compliance with the FW Act, if they have not already done so, and include details of the PPL scheme and the employee's responsibilities;
• review any additional company paid parental leave and how it will operate in light of the PPL scheme; and
• consider whether training should be arranged for the relevant payroll or administrative staff.

Please let us know if you require any assistance with the above steps.

Administering PPL: Step-by-Step Guide for Employers

1. Pre - register for the PPL scheme with Centrelink through Business Online Services (http://www.centrelink.gov.au/internet/internet.nsf/businesses/index.htm). This should be done as soon as possible;
2. If you are required to pay PPL to an eligible employee, the business will receive a notification from Centrelink (usually via post);
3. Provide all requested details to Centrelink to ensure timely receipt of PPL funds. These will include bank account details, the usual pay cycle and pay cut-off details;
4. You should receive funds from Centrelink in the nominated bank account;
5. Begin providing PPL to the employee in accordance with their usual pay cycle, withholding PAYG;
6. Provide a record of PPL provided (e.g. clear and separate notation on payslip);
7. Keep financial records of receipt and transfer of PPL funds. PPL will also need to be included in the employee's annual or part-year payment summary (for tax purposes);

8. Notify Centrelink if:

   1. the employee returns to work (before or during PPL period), other than for 'keeping in touch' purposes;
   2. the employee resigns;
   3. any changes are made to the employer's bank account details or pay cycle;
   4. the PPL funds received from Centrelink are incorrect, or the employer is unable to provide PPL to the employee for any reason; or
   5. if the business is being sold, merged with another business, transferred or ceases to trade (notification must be given in advance).
9. Return any unused funds to Centrelink.

The process has also been summarised in the flowchart below.

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.