On 17 June 2010 the government’s Paid Parental Leave Bill passed the Senate, making its passage into law all but inevitable.
However, the Senate made some important amendments that will impact how employers incorporate the government-funded entitlements into any existing schemes.
The entitlement
In our ER Alert of 4 May 20101 we set out the entitlement and eligibility rules attaching to the Paid Parental Leave Scheme. These are, in summary, up to a maximum of 18 weeks of government-funded paid parental leave at the Federal Minimum Wage (currently $543.78 per week), provided that the person meets the eligibility requirements.
Eligibility
To be eligible, a person must:
- satisfy the work test
- satisfy the income test (ie the person’s adjusted taxable income must be less than $150,000 indexed)
- satisfy the Australian residency test
- be the child’s primary carer
- not have returned to work, and
- not be entitled to the government’s baby bonus (restricted to primary carers of a child who earn less than $75,000 per annum).
The Senate’s amendments
In passing the Bill, the Senate included a number of amendments to:
- modify the work test to address situations of premature birth or pregnancy related complications or illness, and
- ‘clarify’ that an employer’s obligation to pay a person parental leave under the new provisions is separate and additional to any other obligation the employer has with respect to paid parental leave.
It is the second of these amendments that is the most significant. Previously, it was thought that there may be scope to offset the government payments against amounts paid in respect of employer-provided entitlements. The amendments make it clear that this will not be allowed. So, for example, if an employee accesses paid leave such as paid parental leave or annual or long service leave, the employer will be obliged to pay the employee’s full paid leave entitlement in addition to the instalments of government-funded parental leave pay.
However, in debate conducted in the Senate, it was clarified that this amendment will only apply to entitlements under a law or industrial instrument (including a contract of employment), and not to an employer’s ‘discretionary policy’. This will mean that employers should carefully consider the status of parental leave entitlements and consider revising policy arrangements.
What to do now?
Employers should act now to be ready for the new regime.
Entitlements to paid parental leave under this legislation will be available to employees from 1 January 2011 (with payments either coming from the Family Assistance Office or through the employer), and employers must provide it through their payrolls from 1 July 2011. Therefore, the ‘first wave’ of employees entitled to these benefits are pregnant now (or have partners who are pregnant). These people are probably considering how to manage their period of parental leave and their financial circumstances over the short to medium term.
Employers who want to assist their employees to navigate this period could:
- confirm their approach in respect of combining the entitlements under the new regime with current entitlements (if any) and communicate this to employees
- consider the impact of the new regime on entitlements under existing awards and enterprise agreements and any changes to be negotiated in the next round of bargaining (it is possible for employers bargaining now to include a clause providing for a ‘top up’ of government paid parental leave)
- clarify how any contractual or policy entitlement interacts with the government funded scheme, where applicable
- consider changes to contractual entitlements or policy benefits (for example, increasing the period of paid parental leave to 18 weeks inclusive of any government funded payments)
- update policies where necessary and communicate this to employees as soon as possible (changes to employer funded contractual entitlements will only be effective with mutual agreement), and
- educate themselves of the application process through the Family Assistance Office and provide this information to employees.
Whilst the new requirements of paid parental leave may result in an additional administrative burden to employers, there is also significant scope to use the government funded scheme to increase employee retention and engagement by taking a positive, pro-active approach to the new entitlements and requirements.
This article was written by Elizabeth Ferrier, Special Counsel, Sydney and Kate Jenkins, Partner, Melbourne
Endnotes
- Freehills article, ‘Paid Parental Leave Scheme released today’
More information
For information regarding possible implications for your business, contact a member of the Employee Relations team.