HR&IR Update | Are your systems in place? Employer responsibility for government paid parental leave from 1 July 2011

6 June 2011

On 1 July 2011, your organisation will become responsible for paying government funded parental leave pay to employees. In this Update, we provide some timely reminders of the principal features of the scheme together with a summary of the key steps in administering the scheme.

Implications for employers

  • From 1 July 2011, your payroll systems need to be ready to pay employees their government parental leave pay.
  • You should think about online registration to make the provision and receipt of information easier.
  • You need to make sure those responsible for administering the scheme in your organisation know what needs to be done.
  • You need to decide how your organisation is going to deal with the interaction between the government scheme and any existing paid leave arrangements in your organisation. For example would you consider any permissible offsetting arrangements? Importantly, not all offsetting arrangements are permitted by the legislation.

Key features of the government's paid parental leave scheme

The paid parental leave scheme has been in operation since 1 January 2011. To date, Centrelink has been responsible for making payments to eligible employees. From 1 July, the payment obligation will (in most cases) fall to employers.

Key features of the scheme

  • Eligible workers, who are the primary carer of a child, will be entitled to paid leave for up to 18 weeks (at the federal minimum wage – $589.30 from 1 July 2011).
  • To be eligible, workers must have:
    • learned less than $150,000 (indexed) in the previous financial year
    • worked 'continuously' for at least 10 of the past 13 months (breaks of up to eight weeks between work days are permitted)
    • worked at least 330 hours in the 10 months and
    • satisfy an Australian residency requirement.
  • Paid leave to is available to current employees (including some casual and some short term employees) and, in some cases, to contractors, the self employed and employees who have resigned.
  • Another carer, other than the child's mother (eg. the father or even a grandparent), may be able to receive the balance of any unused parental leave pay.
  • Payments will cease if an employee returns to work (although they can 'keep in touch' with the workplace for up to 10 days).
  • The baby bonus is not available to employees who receive parental leave pay.
  • Payments under the government scheme are in addition to any other payment an employer is obliged to pay to an employee on parental leave, including under a law or industrial instrument (and probably an employment contract). However, the position differs if the employer has a discretionary paid parental leave scheme or policy (in which case some set off arrangements may be possible – although in practice, this may be difficult to achieve).

Administering the scheme

There is no doubt the parental leave scheme will increase the administrative burden for your organisation. Here are some of the key things you need to know about how it will work in practice and your organisation's obligations.

  • In broad terms, your organisation will be responsible for paying government parental leave payments to an employee if:
    • their child is born or adopted on or after 1 July 2011
    • they have worked for you for at least 12 months before the expected birth or adoption and
    • they are expecting to receive at least 8 weeks' parental leave pay.

If these requirements are not met, Centrelink will make the payments unless your organisation opts in to pay them and the employee agrees

  • The employee must apply for parental leave pay to Centrelink's Family Assistance Office – which will assess the application. The employee will also nominate when they want their payments to start – which could be well after the date of birth.
  • If an employee is eligible for parental leave pay, Centrelink will notify you. As part of this, you will be asked to provide certain information (eg. the employee's pay cycle, your bank account details).
  • Centrelink will transfer the parental leave pay to your nominated bank account in advance of any payments having to be made to your employee. You will receive funds fortnightly or, by choice, in three instalment of six weeks' pay. You will also receive a Centrelink Payment Advice outlining the amount paid (which could be for multiple employees).
  • You must pay the employee in their usual pay cycle (but only after funds have been received from Centrelink). Because of timing issues, the first payment you make could include an amount of back pay for a previous pay period.
  • Parental leave pay must be paid in the same way as salary and wages – not in a lump sum or at half pay. However, an employee can salary sacrifice their parental leave pay or agree to other deductions from it. You must also deduct PAYG tax.
  • You must provide the employee with written notification of each payment within one working day. This can be via the employee's pay slip or a separate notification – and can be sent electronically. You don't have to tell Centrelink that you've made the payments.
  • You must advise Centrelink if the employee's employment ends, if they return to work (other than when keeping in touch for up to 10 days) or if you sell the business the employee works in.
  • You should only stop paying parental leave pay if Centrelink tells you to.
  • You don't have to make superannuation contributions on parental leave pay and it doesn't count for the purposes of calculating payroll tax or workers' compensation premiums or as service for the purposes of most leave accruals. For these reasons, it should be identified separately from other amounts that do count for these purposes.
  • You can set up your organisation to receive and provide information electronically as part of the scheme. This includes registering for an AUSkey and with Centrelink Business Online Services.