Pregnant pause - understanding the new paid parental leave scheme

18 November 2010

The Federal Government’s new paid parental leave scheme opened for registration in October, providing eligible parents with access to up to 18 weeks’ paid leave at the Australian minimum wage of $570 per week. If you’re expecting a baby or adopting a child from 1 January 2011, you’ll be able to register for the scheme via the Family Assistance Office (FAO) up to 3 months prior to your child’s birth or adoption.

Who can access paid parental leave?

To access the scheme, parents will need to:

• Register through the Family Assistance Office
• Be Australian residents
• Earn $150,000 or less (based on adjustable taxable income in the previous financial year)
• Be the child’s primary carer; and
• Pass the work test.

The Work Test

To pass the work test, expectant parents will need to have worked at least 10 of the 13 months prior to the birth or adoption of their child, with at least 330 hours of work within that 10 months -  irrespective of whether they are part-time, casual, full-time, self-employed or a contractor. The paid parental leave scheme will be available regardless of whether employees have been with their current employer for 12 months or more.

What does the scheme provide?

The Paid Parental Leave Scheme gives parents an entitlement to pay, not leave.

The Paid Parental Leave Scheme provides 18 weeks of paid parental leave at the minimum weekly wage (currently $570 per week), which is taxable as normal income. This amount is $10,260  however the after tax amount will depend on your other assessable income.  Anyone receiving the payments under the paid parental leave scheme will not be eligible for the $5,000 baby bonus – a non assessable payment.  Eligible parents can elect to take the baby bonus instead of participating in the parental leave scheme.

What you do not get

• Superannuation Guarantee
• Accrued annual or sick leave in relation to these payments
• Baby bonus
• A lump sum up front – nor is the baby bonus.

Employers are only responsible for paying the parental leave payments to eligible employees who have been with them for 12 months or more and the employee intends to take 8 weeks or more of parental leave.  Anyone who is eligible to access paid parental leave but does not meet these criteria will be paid directly by the FAO.

So what do employers need to do?

Employers will be able to opt into the scheme during the six month phase-in period, however after 1 July 2011, the responsibility for administering the scheme will largely fall to employers.

Paid parental leave will be paid by the employer in line with their employee’s normal pay cycle, and like normal salary and wages, the payments will be subject to tax, included on an employee’s PAYG summary and require a payslip.

• Unlike normal employment conditions:
• Superannuation guarantee does not apply to paid parental leave payments.
• Leave does not accrue during the period of the paid parental leave.
• If your business is enrolled or liable for Payroll Tax, parental leave payments are not included.  You will need to make sure you can distinguish between the different payments.
• Parental leave payments are not included in worker’s compensation calculations.

Once an employee is registered for the scheme, the FAO will pay the employer in advance of their employee’s usual pay cycle.  For full details of employer responsibilities concerning administration please visit the Family Assistance Office website.

How does the scheme fit with existing private parental leave schemes?

The Government’s scheme does not supersede any existing agreements and as such, any agreement will remain in place for the life of that agreement.  If you have an existing private parental leave scheme in place, you should consider your options and if necessary, consult with your accountant or an employment lawyer. 

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