30 NOVEMBER 2010
As of 1 January 2011 Australia will have a Paid Parental Leave scheme. It will provide eligible working parents with up to 18 weeks of Parental Leave Pay at the National Minimum Wage.
Employers will need to ensure they have made the necessary preparations to participate in the scheme.
Employee Eligibility
Parents can apply for Parental Leave Pay during the first year after birth, adoption or placement of a child if:
(a) they satisfy the work test, the income test and the Australian residency test;
(b) they are the child’s primary carer;
(c) they have not returned to work after the birth, adoption or placement; and
(d) neither parent is entitled to baby bonus.
The Work Test
To meet the ‘work test’ the employee must have:
(a) worked for at least 10 of the 13 months prior to the birth or adoption of the child; and
(b) worked for at least 330 hours in that 10 month period (just over one day a week), with no more than an eight week gap between two consecutive working days.
A working day is a day where the employee has worked for at least one hour. The employee does not need to be working full-time to be eligible for Parental Leave Pay. An employee may meet the work test even if they are a part-time, casual or seasonal worker; are a contractor or self-employed; work in a family business such as a farm; have multiple employers, or have recently changed jobs.
The Income Test
An employee may be eligible if they earn up to $150,000 per annum (until 1 July 2012 when the maximum will be indexed in line with the baby bonus).
Australian Residency Test
An applicant is treated as satisfying the Australian residency test if either they are an Australian resident or have a special category of visa (under migration or social security legislation). Generally, the person must not have been absent from Australia for more than 3 years.
Employer to Make Payments
The Commonwealth Government will fund the Parental Leave Pay. However, as of 1 July 2011 the primary obligation will be on the employer to make the payment on behalf of the Commonwealth Government. The employer will be notified of this obligation by way of an ‘Employer Determination Order’. The Order will set out the payment details and the Commonwealth Government will deposit the funds into the employers bank account for distribution to the employee.
From 1 January 2011 until 1 July 2011, employers may choose to pay the Parental Leave Pay to eligible parents and be reimbursed by the Commonwealth Government.
The employer must withhold tax from the parental leave payment, although superannuation is not payable on the amount. Employees will not accrue leave wile on paid parental notwithstanding that their employment is treated as continuous.
Existing Parental Leave Plans
Employers should be aware that despite the introduction of the Paid Parental Leave scheme, they must still comply with an existing parental leave scheme which forms part of a contract of employment with their employees or which is contained in an industrial agreement.
Disputes About Parental Leave Pay
Any dispute about eligibility or an employer’s obligation to pay will be managed by the Fair Work Ombudsman or the Family Assistance Office.
Final Comments
The Paid Parental Leave Act 2010 imposes obligations on employers with respect to payment of Parental Leave Pay. Employers should ensure they are capable of meeting those obligations and monitoring compliance under the Act. This includes ascertaining whether their payroll system is able to meet the record keeping requirements of the Act and tracking receipt of funds, when payments are to be made and when various notices are required to be given.
We also recommend employers review any existing parental leave plans. If the existing obligations are part of the employer’s company policy only and do not form part of a contract of employment, it may be possible to amend the company policy to remove that entitlement rather than it being additional to the governments Paid Parental Leave scheme. This of course should be reviewed on a case by case basis.