Parental leave: Where are we up to?

November 2016

While there are many parts to the debate around parental leave, the real question is who pays for paid leave?

Paid parental leave has become a very contentious topic, particularly around who pays for paid leave. Reforms currently before Parliament are seeking to curb the capacity for parents to receive both employer and Government funded parental leave payments instead moving to a 'top up' system. 

It's an attempt to curtail the so-called 'double dipping', a termed coined by former Treasurer Mr Joe Hockey to stop women claiming paid parental leave from the Government and their employer.

Paid parental leave: an international perspective

According to a recent international report, mothers across OECD countries are entitled to less than 18 weeks of paid maternity leave around childbirth. Most OECD countries offer paid maternity leave that lasts for at least three month, with the United States the only country to have no statutory entitlement to paid leave nationally.

On average, OECD countries offer eight weeks of paid father-specific leave, either through paid paternity leave or paid father-specific parental or home care leave. Nine OECD countries provide no paid father-specific leave at all, and 11 offer two weeks or less.

Most OECD countries provide payments that replace over 50% of previous earnings, with 12 countries offering a mother, on average earnings, full compensation across the leave period. Payment rates are lowest in Ireland and the United Kingdom, where only around one-third of gross average earnings are replaced by maternity benefits.  As a result, despite lengthy paid leave entitlements, full-rate equivalent paid maternity leave in these countries lasts only nine and 12 weeks respectively. 

In Australia, paid parental leave is available for up to 18 weeks for eligible parents paid by the Government at the minimum wage.  Eligible working dads and partners also get access to two weeks paid leave at the minimum wage. For the moment, if your employer provides paid parental leave then you can still claim the Government scheme.  One is unaffected by the other.

According to the OECD, Australian mothers receive 42% of their previous earnings while on parental leave. This is largely eligible public sector employees who receive employer funded paid parental leave up to their ordinary rate of pay, and corporates.  Of those who receive both employer sponsored paid parental leave and claim the Government's paid parental leave scheme, 60% are employed by the public sector and 40% are corporates.

What is the purpose of the reforms?

In effect, the reforms remove the capacity for private and public sector parental payments to co-exist.  That is, if someone is entitled to paid employer leave of less than 18 weeks, then the Government will top up this payment to reach the maximum 18-week entitlement at the minimum wage.  Senate figures reveal that only 6% of women who claimed the Government funded paid parental leave were on salaries above $100,000.  The median income of those claiming the scheme was $47,730.

When are the reforms due to take effect?

The proposed 1 January 2017 implementation date of the reforms is also contentious, as it would leave women who are currently pregnant in potentially very different circumstances to what they believed when they fell pregnant.  However, it is unlikely that this date will be agreed by the Senate.

The reforms also amend how employers interact with paid parental leave.  At present, paid parental leave is paid via the employer.  Under the reforms, parental leave would be paid by the Government unless the employer opts-in to make the payments.

The reforms are expected to save around $1.2 billion across the forward estimates.

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This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.

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