Paid Parental Leave Scheme: Government-Funded Parental Leave Payments To Employees Cannot Automatically Be Offset Against Employer-Funded Payments

The new national Paid Parental Leave ("PPL") scheme will operate from 1 January 2011. It will provide primary carers with up to 18 weeks of parental leave pay at the rate of the national minimum wage, subject to meeting certain eligibility requirements. These payments will be fully funded by the Commonwealth government. Employers may be required to distribute, but not fund, the PPL payments after 1 July 2011.

Employers who already fund their own workplace paid parental leave schemes are not automatically entitled to reduce employer-funded leave payments by the amount of payments provided for in the PPL scheme. Employer-funded leave entitlements will continue unaffected by the PPL scheme. Whether an employer-funded scheme can be altered will depend on whether the employer is obliged to continue an existing scheme at current levels, or has discretion and capacity to vary it without agreement.

An employer can be obliged to provide paid leave to a new parent by an industrial instrument, a contract of employment or a legislative obligation (such as state and territory long service leave legislation). However, if the employer provides paid leave for new parents under a non-binding policy, the employer may have discretion to alter that policy to account for the new PPL scheme.

Adjusting benefits available to employees because of the availability of PPL scheme payments needs to be approached carefully for two reasons. First, while in principle the distinction between non-binding policies and obligations is clear, in practice it can be difficult to draw this line. Policies can become enforceable terms of individual contracts or can be incorporated into industrial instruments as obligations. Second, the Fair Work Act 2009 prevents "adverse action" being taken against a current or future employee because of the existence of a "workplace right". Any determination from courts or tribunals on whether access to PPL scheme payments is to be regarded as a "workplace right" will not be available for some time.

Key points

• Employers need to make a judgement whether reducing employer-funded paid leave entitlements on account of the new PPL scheme is a worthwhile or retrograde step. The reasons for introducing an employer-funded paid scheme in the first place may mean that retention and engagement goals are best met by simply continuing existing schemes on top of the PPL scheme.
• If reduction of employer-funded scheme payments is considered, the crucial test is whether the employer is under an obligation to provide them, or they are a benefit provided, and able to be reduced or removed, at the discretion of the employer.
• If an employer-funded paid parental leave scheme is called a "policy" or "procedure", the scheme could still have been incorporated into contracts of employment, or an industrial instrument.
• Care is needed when considering offsetting the PPL scheme payments or otherwise changing an existing employer-funded scheme, to avoid allegations that employees (including future employees) are being subjected to unlawful "adverse action".
• Enterprise bargaining demands for employers to fund parental leave schemes, provide for superannuation contributions during parental leave and "top-up" PPL scheme payments to normal wage levels are likely to be strongly pursued by unions in future. Anticipating those demands with a business case focussing on the organisational needs will be useful preparation for upcoming enterprise bargaining. Maximum flexibility may involve implementing a non-binding policy addressing these demands, rather than agreeing to create enforceable obligations in an enterprise agreement.

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.