Paid Parental Leave explained

In one month’s time, employers of all sizes will have to contend with the Paid Parental Leave scheme. To help you deal with it the smart way, we’ve outlined the essential information your start-up needs to know.

Australia’s first national Paid Parental Leave scheme starts on January 1, 2011. Even though payments will be funded by the Government, employers will take on administrative responsibilities, essentially acting as a paymaster.

It’s therefore imperative that you and your employees have a clear understanding of what the scheme involves so that you can plan ahead. That process starts here.

What is it?

The Paid Parental Leave scheme is a government-funded entitlement for working parents who are the primary carers of a child that is born or adopted from January 1, 2011.

An eligible person can receive taxable Parental Leave Pay at the rate of the National Minimum Wage, which is currently $569.90, for a maximum period of 18 weeks. Tax is paid on this weekly amount.

Who is eligible?

Working parents who are full-time, part-time, self-employed, casual contract and seasonal employees will have access to PLP if they meet the eligibility criteria. A salary cap for eligibility has been imposed at $150,000.

To be eligible, employees must have worked for 12 months or more in the organisation and must be accessing more than eight weeks of PLP.

If they have worked for less than 12 months, or have less than eight weeks of PLP to access, a business can choose whether or not to provide PLP. Either way, the government will still pay the employee the PLP.

The primary caregiver must have worked at least 10 of the 13 months before the birth or adoption of the child, and have worked at least 330 hours in that 10 month period, with no break longer than eight weeks between two working days.

The parent receiving the payments cannot work from the date of birth or adoption until the payments cease.

As a business, you do not need to work out if an employee is eligible. This is done by Centrelink, who will notify you if you have to provide PLP to any of your employees.

However, Skye Recruitment principal Sophie Macdonald says small businesses need to ensure they don’t get “caught out” by failing to meet their obligations under the scheme.

“There’s a danger posed to small businesses if they think it applies only to large organisations,” she says.

“There are no exclusions based on size – it applies to everyone.”

I have an eligible employee. Now what?

It is important that your employee discusses their leave intentions with you, and this should be done at least 10 weeks prior to their proposed leave.

Although businesses don’t have to fund the PLP, they do need to distribute the money to employees.

In order to receive these funds, employers need to provide a number of details to the Family Assistance Office including bank account and employee information.

The easiest way to provide this information is online. You can register for the Paid Parental Leave scheme through Business Online Services at www.centrelink.gov.au. Alternatively, you can call the Centrelink Business Hotline on 13 11 58 or visit a Centrelink customer service centre.

The funds should arrive before your employee’s usual pay cycle, and businesses aren’t required to pay their employees until those funds have been provided.

You will receive the funds fortnightly throughout the 18 weeks, or you may choose to receive them in three six-weekly installments.

It is unnecessary for businesses to set up a new bank account or lodge regular reports as payments can be distributed during the normal pay cycle.

Do I have a choice?

Employers can opt to be early adopters of the scheme and begin handling payments from January 1, 2011.

This role will be voluntary until June 30, 2011, so you have time to make any necessary adjustments to your payroll system. It also means you will not have to make changes to your payroll systems halfway through the financial year.

Centrelink will pay your employee for this period if you decide not to provide the pay to them.

From July 1, you will be responsible for providing PLP to your eligible employees. However, you will still have the choice to pay these employees for this period. If you choose not to provide PLP, Centrelink will do it for you.

Shana Schreier-Joffe, managing director of Harmers Workplace Lawyers, advises small businesses to wait until the June 30 deadline.

“It would certainly benefit those companies with small payrolls, which perhaps lack sophisticated forms of administration, to wait and do it in July,” she says.

“That’s why there’s a six-month delay – to ensure businesses have the right systems in place.”

Peter Strong, executive director of Australia’s Small Business Council, also believes small businesses should stick with the June 30 cut-off.

“Delay it as long as you can. I don’t see any benefit from getting involved early. Wait and see if there are any teething problems and plan accordingly,” Strong says.

“Also, ring up Centrelink every chance you can and seek advice on what to do. Don’t try and do it yourself.”

Will the scheme affect existing leave agreements?

The scheme does not provide an entitlement to leave; it is designed to complement existing leave entitlements. Also, the scheme does not result in additional accrual of business-provided leave entitlements.

If your employee has been employed by your business for 12 months or more, they are still entitled to 12 months unpaid parental leave.

Businesses that currently provide paid parental leave through an industrial agreement, or other contractual agreement, cannot withdraw those entitlements for the duration of that agreement.

With respect to non-binding obligations, such as an entitlement under a workplace policy, employers should consider reviewing such arrangements in light of the new paid parental leave scheme.

For example, employers may want to scale back their obligations under their existing workplace policies.

Employers may also wish to review any paid parental leave entitlements provided by their standard contracts of employment for new employees in light of the statutory scheme.

Are there any penalties for doing the wrong thing?

The Fair Work Ombudsman will have the power to investigate employers that have allegedly failed to make leave payments to eligible employees or do not meet their obligations under the scheme.

Breaches of the scheme may attract a maximum penalty of $6,600 for individuals and $33,000 for corporations.

How should I prepare?

The scheme won’t require a major overhaul of your workplace practices but there some issues to consider:

• Do your employment contracts already contain parental leave policies?
• Will you need to revise your payroll systems?
• Are employees likely to negotiate changes to existing contacts?
• Will weekly payments be sufficient or would fewer payments be preferable?

Macdonald says there’s no need to change your payroll system, so it shouldn’t be that hard to prepare.

“The only cost to your business is in the time it takes to set up,” she says.

“All additional records and statements must be kept, but these can slot into any existing accounting or bookkeeping system,” she says.

What else do I need to do?

You must keep written financial records of the Paid Parental Leave funds you receive from Centrelink, and of the PLP provided to your employee.

You also need to notify Centrelink if and when your employee returns to work or is no longer employed by you.