Paid Parental Leave - August 2009

Until Treasurer Wayne Swan’s recent announcement of the implementation of a Paid Parental Leave Scheme set to come into effect on 1 January 2011, Australia was one of only two OECD countries (the USA being the other) without a statutory paid parental leave scheme.

The Government’s proposed Scheme allows a budgeted $731 million over a period of five years to support paid parental leave for primary care givers. This means those primary carers who are earning less than $150,000.00 a year, will receive a weekly payment at the federal minimum wage rate (currently $543.78 a week) over 18 weeks after the birth or adoption of a child. Under the Scheme, either parent would be eligible.

The development of the Scheme

The Scheme is based on the recommendations of the final report of the Productivity Commission Inquiry Paid Parental Leave: Support for parents with newborn children. The aim is to enable more parents to care for a child in its earliest months and to encourage women to maintain their connection with the workforce, which the Report notes as essential to help prepare Australia for the challenges of an ageing population.

However the Scheme will not take up two key recommendations contained in the Report being 2 weeks paid leave for the partner and a plan that business must pay for superannuation while the parent is out of the workforce (although this will be reviewed in 2013).

Eligibility

Paid Parental Leave will be available to contractors, casual workers and the self-employed, many of whom have no access to employer-provided paid parental leave entitlements. Paid Parental Leave will also be available to mothers who have a stillborn child.

To be eligible for the Scheme, a parent in paid work:

• must have worked continuously with one or more employers for at least 10 of the 13 months before the expected date of birth or adoption;

• must have worked at least 330 hours in those 10 months (equivalent to around one full day of work each week); and

• must have an adjusted taxable income of $150,000.00 or less in the financial year prior to the date of birth or adoption of the child.

Paid Parental Leave must be taken after the birth or adoption of a child and be completed within 12 months of the birth or adoption. However, Paid Parental Leave will not be paid after the employee returns to work unless the employee has been able to transfer the Paid Parental Leave to another primary caregiver (usually the father) or they are eligible for a 'keeping in touch' exception. This exception means an employee may be able to work up to 10 days in the 18 week period where work is necessary to strengthen the employment relationship. The finer detail of the Scheme is yet to be released. The Government has commenced a three month consultation process with employer organisations and unions as well as peak bodies for small business to finalise the Scheme.

How it works

The government will provide the necessary funds needed for the implementation of the Scheme and the function of employers will essentially be that of paymaster.

The proposal is that, although the payments for paid parental leave will be passed on by employers to employees, the employer will receive the funds from the government in advance. This is aimed at minimising consequential costs to the employer.

Payments made under the Scheme are taxable. Parents have to choose between either Paid Parental Leave or the Baby Bonus (except in the case of twins or multiple births) and family tax benefits.

Employees may take government-funded Paid Parental Leave and any employer-provided paid leave. Eligible primary carers can elect whether they want to participate in the Scheme or not.  The Government intends to establish an online calculator to help employees decide which option is the best for them. This means an employee is free to decide and might choose the Baby Bonus option if their employer provides paid maternity leave under their employment contract, award or policy if it is more beneficial. Furthermore an employee may choose to take all of their employer provided maternity leave and then commence Paid Parental Leave once that leave expires.

Implications for employers

Parental leave is a critical issue for employers.  Once introduced the Scheme will operate along side the 2 National Employment Standards (NES) which will increase the total amount of unpaid parental leave and provide employees with the right to request flexible working arrangements. This means that employers cannot ignore the issue.  Employers should consider the Scheme and how they will manage the Scheme and the relevant NES which will apply from 1 January 2010.  The treatment of parental leave is for many organisations a key to diversity and a distinguishing feature of the workplace.  If your organisation currently provides paid parental leave you should review how your organisation’s existing entitlements will interact with the Government Scheme.  For example, if your business already provides paid maternity leave through an industrial instrument it cannot withdraw that entitlement for the life of that instrument.  However during bargaining for a new enterprise agreement the parties will be able to agree to modify existing paid parental leave in light of the Scheme.  Many employers will also consider whether to “top up” the Paid Parental Leave to incentivise some or all employees.  The potential impact of the Scheme and the relevant NES on your organisation’s staffing requirements and structure will also need to be taken into account.