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Paid Parental Leave – how will it affect small business?

Paid parental leaveWith the arrival of 2011, employers should familiarise themselves with their obligations under the paid parental leave legislation which came into force on 1 January 2011.  Employers must be aware of the role they play in distributing funds in connection with paid parental leave which will be paid to employers from the Government.

Who is entitled to paid parental leave?

Employees will be eligible to receive paid parental leave entitlements provided they have:

  • worked at least one day per week for 10 of the 13 months before the birth or adoption of their child;
  • Australian residency;
  • made a claim for paid parental leave (that is, it is not an automatic entitlement);
  • given birth or adopted no earlier than 1 January 2011;
  • the role as primary care giver of the child;
  • not have worked between the date of birth/adoption and their nominated start date for paid parental leave; and
  • earned less than $150,000 adjusted taxable income in the financial year prior to the date of birth/adoption (which includes base rate of pay, bonus, foreign income and income earned from assets like shares or property). This is a flat income test that is not calculated on a pro-rata basis for employees who are not full time.

Employer’s obligation to make payments to employees

After 30 June 2011, employers must act as “paymasters” whereby the Government provides the employer with funds which are to be distributed to the eligible employee for paid parental leave entitlements.  Up until this point, employers can refuse to distribute the funds and Centrelink will fulfil this role.

Frequency of payments, taxation and superannuation

Employers are required to make paid parental leave payments on each regular payday for that employee if they are paid on a monthly basis. For employees who would not normally receive monthly pay, employers must make fortnightly payments. Employers are required to withhold PAYG tax from each payment.

There is no provision for superannuation in the legislation and employers are not expected to make contributions to their employee’s superannuation fund.

Employees do not accrue annual leave entitlements during this period of leave.  However, employers that already have a paid parental leave scheme cannot replace it with the Government’s – an employee already entitled to an employer-funded paid parental leave scheme will also receive their entitlements from the Government.

Considerations for employers

  • Employers have numerous considerations regarding payroll, administration and policy which need to be addressed to facilitate the paid parental leave entitlements into their practices.  This may include a review of existing employee contracts and company policies.
  • Employers should be cautious when amending company policy to write out existing internal paid parental leave schemes as this can lead to claims by employees of a unilateral contract change.
  • Employers should also be aware of the additional administrative measure required to facilitate this piece of legislation.
  • Employers must register the business with the Family Assistance Office following a claim for paid parental leave by an eligible employee. It is advisable for those employers to register with the Office if a claim is inevitable in the future (e.g. in a large corporation) even if no claim has yet been made.

This article was written by Michael Bracken, Partner, and Edward Cregan, Solicitor at TressCox Lawyers.

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