On 17 July 2010, the Senate passed the Paid Parental Leave Bill 2010 (Cth), which would introduce Australia’s first paid parental leave scheme proposed to begin on 1 January 2011. The scheme, to be funded by the taxpayer, will mean that Australia is no longer one of only 2 OECD countries with no Government-funded parental leave scheme.

The scheme is designed “to provide eligible working mothers and other primary carers of children born or adopted on or after 1 January 2011 with up to 18 weeks’ paid parental leave at the national minimum wage”.1

The legislative process is not yet complete. The Senate amendments would need to be passed by the House of Representatives at the next Parliamentary sittings in the Spring of 2010. While the passage of the scheme in its current form remains in some doubt, the coalition Opposition parties have stated that the scheme would not be further opposed and the Independents in the House of Representatives have not indicated an opposing view.

What does the Government paid parental leave scheme mean for employers?

Paid Parental Leave – what is it and who gets it?

The scheme will entitle the primary care giver of a child born or adopted on or after 1 January 2011 to 18 weeks of PPL payments at the minimum wage, which is currently $569.90 per week.2 This entitlement will be available to full-time, part-time and casual employees earning less than the $150,000 income test, as well as contractors and the self-employed, and all recipients will receive the full weekly rate. The entitlement will be subject to income tax, and will be income tested at $150,000 based on the primary carer’s adjusted taxable income in the year prior to the birth, adoption or date of claim.

In addition, based on an election campaign promise by Julia Gillard, fathers and partners will be entitled to 2 weeks paid leave at the time of the birth or adoption of a child. This entitlement, however, is not set to begin until July 2012.

In order to be entitled to PPL, a person must be:

  • the primary carer of a child born or adopted after 1 January 2011 (although applications can be made from 1 October 2010)
  • the mother of the newborn child or the parent of the adopted child
  • in paid work and have:
    • been engaged in work continuously for 10 of the 13 months prior to the expected birth or adoption of the child, and
    • undertaken at least 330 hours of paid work in the 10 month period (that is an average of 1 day’s paid work per week)
  • not have worked between the date of birth or adoption of the child and their nominated start date for PPL, and
  • meet the income test.

PPL must be finished within 12 months of the date of birth or adoption. It will not be available after the parent returns to work. However, if the primary care giver returns to work early, they may be able to transfer the remainder of the PPL entitlement to another caregiver who is eligible. Alternatively, the parent may be able to be in the workplace while on PPL under ‘keeping in touch’ provisions.

PPL will be available to mothers in the event of a stillborn baby or if a prematurely born baby means that the expected date/paid work threshold is not reached.

Superannuation payments will not be required to be paid on PPL payments under PPL scheme - subject to review within 2 years of the scheme commencing. Recommendation 2.4 of the Productivity Commission Inquiry into Paid Parental Leave: Support for Parents with Newborn Children (PCI) provided that while there was a ‘prima facie’ case that employers should fund superannuation contributions during the PPL period, these contributions should be implemented following a review of the scheme after its inception.

While super contributions are not yet required under the PPL scheme, National Australia Bank (NAB) has recently announced that its voluntary PPL scheme (12 weeks at full pay plus super) will also make superannuation contributions at 10 per cent of the employee’s total remuneration for the additional 40 weeks of unpaid leave that the employee is entitled to take under the Fair Work Act.

NAB believes that more than 650 employees a year would benefit from this initiative. This contribution sets a new benchmark, as Westpac also recently announced that it would make super contributions at 9 per cent in addition to its PPL scheme.

PPL can be taken in conjunction with, or in addition to, employer-provided paid leave, such as annual leave or parental leave. However, no leave entitlements will accrue while an employee is on a period of PPL.

Operation of the PPL Scheme

Who applies?

The PPL entitlement is triggered by a claim made to the Secretary of the Family Assistance Office (FAO) by the employee, who is the potential PPL recipient(s). Once a claim is made, the Secretary must make a determination as to the eligibility of the claimant(s). Once a determination is made by the Secretary, PPL is payable to the eligible claimant(s) employee(s).

Payments are not required to be made by the employer if the Application is not completed and / or the Secretary has not made a determination.

Who pays? – Distribution of the PPL entitlement

Employees will be paid by their employer where they have completed at least 12 months continuous service with the employer immediately before the expected date of the birth, or, where a claim is made after the birth, the later of the expected date of birth of the child and the day the child was born.3

Employees who have not completed the 12 months continuous service but still have an entitlement to PPL will be paid by the FAO.4

While PPL will be funded by the state, employers will generally be required to make the payments to employees. This imposes administrative requirements on employers.

Where the employer is required to pay the entitlement, it should receive the appropriate funding from the Secretary of the FAO and is then required to pay each instalment as part of the employee’s usual pay cycle.

The Government’s rationale for the employer making the payment is to keep women on PPL connected to their workplaces and thus make it more likely that they will return to work.5 In addition, as stated by Minister Jenny Macklin in the House of Representatives, the Government wants paid parental leave to become a normal part of the employment relationship:

“Employer involvement is a central element of the Paid Parental Leave scheme and we want paid parental leave to be considered a normal part of employers supporting women after giving birth to take leave from work to care for their children.6”

What happens if the Commonwealth does not pay the employer?

The FAO is to ensure that the employer has the required funds before the employer needs to make a parental leave payment to an employee.

Where an employer is not paid enough to fund a particular instalment as at the pay-roll cut-off, the employer is not required to pay that or any other instalments owing to the employee.

An employer is not required to pay an instalment of the PPL entitlement to the employee unless the FAO has paid enough to fund the next instalment to the employer and the payment was received before the employer’s pay roll cut-off – that is, the last day the employer can reasonably make changes to the instalment to be paid to, or in relation to, the person on the person’s payday for the instalment.

The employer must notify the Secretary where it has not been paid enough to fund a particular instalment.

Where the employer has not been paid enough to fund an instalment at the payroll cut-off and this is rectified at the payroll cut-off for a later instalment, then the employer must pay the earlier instalment payable to the person on the payday for the later instalment period.

What happens to employers’ existing PPL schemes?

The Government has anticipated that employers with voluntary PPL schemes will respond by:

  • abandoning their schemes
  • continuing existing schemes in parallel with the statutory entitlements, or
  • topping-up payments from the statutory scheme.

The PCI Report noted that, based on the New Zealand experience it expected that:

“many Australian businesses would restructure their existing leave schemes to top-up Government funded leave to full replacement wages and then use the balance (if any) to extend the period of leave to full pay.”

The Government has sought to ensure that payment of paid parental leave does not affect other employer obligations, by a Senate amendment, section 99A:

“An obligation of an employer to pay a person parental leave pay under this Act is in addition to any other obligation the employer may have in relation to the person, however that other obligation might arise”.

Where an employer has a voluntary paid parental leave scheme under any industrial instrument (including an employment contract), this scheme must be honoured by the employer in addition to the Government entitlement.

“If an employee chooses to access an entitlement under a law or industrial instrument including a contract of employment) to paid leave (for example, paid parental leave, annual leave or long service leave) during the same period the employee is receiving instalments of parental leave pay from their employer … the employer is obliged to pay the employee's full paid leave entitlement in addition to the instalments of parental leave pay.”7

Based on this explanation, an employer is obliged to pay a PPL under its own scheme in addition to the Government’s scheme where the voluntary scheme is made under an industrial instrument (which includes an employment contract).

Where an employer is bound by such an instrument, this obligation remains for the life of the agreement unless it can be altered. For example, where an employment contract refers to a paid parental leave policy and the employment contract contains the express clause that policies are non contractual, the employer would be entitled to amend or abandon the policy as it sees fit.

It is understandable that, as a matter of public policy, the Government does not see employee entitlements going backwards. However, forcing employers who have been generous in their own scheme offerings to add the Commonwealth scheme on top of a scheme that already replaces wages for 8 or 12 weeks is arguably unfair.

The application of s.99A is a significant issue for employers with existing contractual and industrial instrument schemes as it may mean that:

  • employees will be away from work on paid leave for longer periods of time;
  • where an employer is subject to a PPL scheme under an industrial instrument, the employer will not be able off-set, alter or abandon its own scheme for the life of the instrument.
  • existing voluntary schemes will become a central issue and bargaining point for employee representatives in the negotiation of new enterprise agreements.

The Government appears to recognise the effect that s.99A may have on employers with existing schemes which cannot be altered. It noted in the explanatory memorandum that, while an employer who provides PPL through an industrial instrument cannot withdraw that entitlement for the life of the instrument, during the bargaining for the new agreement, the employer can:

“seek to negotiate with employees to amend existing PPL provisions in light of the introduction of the new PPL scheme.8”

As recommended by the PCI, and provided for in the Explanatory Memorandum, the Government will complete a comprehensive review of the PPL scheme at the end of its first two years. The scope of the review is to include the assessment of impacts of the scheme on existing voluntary employer-provided PPL schemes.9 It may be on the back of this review that the Government amends its current position. The review will also look specifically at the issue of superannuation contributions for the period of paid parental leave.10

Why PPL?

Productivity Commission Inquiry into Paid Parental Leave: Support for Parents with Newborn Children

The Productivity Commission was asked by the Government to undertake a public inquiry into paid maternity, paternity and paternal leave. In reaching its final recommendations, the PCI considered a range of issues including, amongst other things, the:

  • economic, productivity and social costs and benefits of paid parental leave, and
  • extent of employer-provided paid maternity, paternity and parental leave.

The Bill was closely based on the recommendations made by the PCI.11

The PCI concluded that a PPL scheme would provide a number of health, social and economical benefits.

Health benefits

The PCI found that there was “compelling evidence” that a Government funded PPL scheme would provide both mothers and their children with significant health and well being benefits.

The achievement of these benefits were strongly linked to evidence showing that a mother’s absence from work, both before and after the birth of a child, is conducive to the optimal growth of the child, the bonding between the mother and the child and allows the mother to recover fully from the birth.

The inquiry found that the PPL scheme it proposed would increase the average absence of mothers from work by 10 weeks. As a direct result of this absence the following health benefits would result:

  • increased levels of exclusive care of infants by mothers which will foster improved development outcomes as opposed to the less intensive care provided where the mother returns to work sooner and the child is in childcare
  • increased absence from work following the birth of the child allows the mother to recover fully from the birth reducing the risk of depression and anxiety which often occurs when the mother returns to work too early,12 and
  • the mother will be able to exclusively breastfeed for longer periods which promotes the mother’s recovery from child birth, reduces other health risks and is considered the optimal form of infant feeding.

Despite the Bill not containing any paid paternal leave provisions, the partner of the primary care giver (who is usually the mother), is eligible to share the PPL under the Bill. The PCI noted that fathers would benefit from the scheme as follows:

  • Paternity leave has emotional benefits for fathers, positively affects children’s emotional and educational achievement and provides support for the mother
  • Evidence suggests that fathers’ involvement with their children at an early age leads to increases in the father’s continuing involvement throughout childhood.

Social and Cultural Benefits

The PCI also noted key social and cultural benefits that were expected to result from the PPL.

One of these was to encourage wider public support and acceptance that, where a child is born and the primary care giver takes time out for family reasons, this is viewed by the community as part of the usual course of work and life for parents in the paid workforce.

In addition, the PCI also saw the PPL scheme as an opportunity to reduce the incentive of relying on the welfare system by providing women with enough time and security to be able to take leave and then return to the workforce. The inquiry expected that this could potentially contribute around six months of net additional employment for the average woman over her lifetime.13

Benefits for employers:

For employers, the major benefit identified by the PCI was that PPL would increase staff retention which would inevitably reduce training and recruitment costs.

The PCI noted that studies in the United Kingdom have found that maternity leave entitlements induced more women to return to their previous employer within seven months than would otherwise be the case.14

As a by-product of being a ‘family friendly employee’ and experiencing increased retention, employers will benefit from being able to attract and retain talented staff, protect their investment in training and developing staff, and raise productivity as a result of improved maternal well-being and morale.15

International Comparison - to the UK, Canada and NZ systems

Australia

The Paid Parental Leave Bill 2010 (Cth) will introduce the first statutory paid parental leave scheme for the private sector in Australia.

Paid maternity leave – A mother may be eligible (if she has worked for 10 of the 13 months prior to the birth/adoption of her child) to up to 18 weeks parental leave pay at the national minimum wage which is currently $569.90 per week.

Paid parental leave – The legislation allows all or part of the mother’s parental leave to be transferred to the child’s other parent, provided they also meet the eligibility requirements and are the primary carer of the child.

Unpaid parental leave – Under the Fair Work Act 2009 (Cth), parents are entitled to up 12 months unpaid parental leave subject to completing a minimum of 12 months continuous service with the employer prior to the birth of the child.16 Both parents may take their leave concurrently, subject to a number of conditions.17

New Zealand

New Zealand parental leave entitlements are governed by the Parental Leave and Employment Protection Act 1987 (NZ). Payment is from public monies and must be paid into the New Zealand bank account specified by the employee applicant

Mothers are entitled to a maximum of 52 weeks maternity leave which includes both paid and unpaid leave as outlined below.

Paid maternity leave – The current entitlement is 14 weeks at up to NZ$441.6218.

Unpaid maternity leave – 38 weeks (52 weeks minus 14 paid weeks).

Unpaid paternity leave – Fathers/partners have an entitlement to a maximum of 2 weeks’ paternity leave (subject to being employed for at least 12 months by the employer – 1 week where they are employed for more than 6 but less than 12 months.) However, fathers/partners can also extend their leave where the mother transfers some of her unpaid leave to the partner.19

As noted by the PCI, “an evaluation of New Zealand’s PPL scheme (14 weeks) also found that it was rare for mothers to transfer their partners.”20

Canada

Canada’s paid parental leave scheme is administered through Canadian Employment Insurance (EI).

EI provides temporary financial assistance for unemployed Canadians including, but not limited to, those who are sick, pregnant or caring for a newborn or adopted child.

To qualify for the benefits, the parent is required to have accumulated 600 insured hours in the last 52 weeks since their last claim.

Maternity Leave – The current entitlement to paid maternity leave is 15 weeks paid at 55 per cent average insured earnings up to a yearly maximum insurable amount of CAN$43,200.21

Paid parental leave – Parents are entitled to 35 weeks paid parental leave. This benefit can be claimed by one parent, or shared between the two, but cannot exceed the 35-week period.

Through a combination of maternity (paid for a maximum of 15 weeks) and parental benefits (paid for a maximum of 35 weeks) a mother/surrogate can take up 50 weeks of paid leave.22 Based on the above rate, a mother can receive a maximum payment of CAN$457 per week for 50 weeks (15 weeks maternity plus 35 weeks parental leave.

The Canadian province of Quebec also has its own parental leave scheme known as the Quebec Parental Insurance Plan (QPIP). QPIP is an income replacement scheme paid for wage earners who pay a premium of 0.506 per cent to Revenu Quebec.

QPIP cannot be claimed in addition to EI benefits, rather, it replaces EI in relation to parental or maternity benefits.

The plan calculates a wage earners benefit subject to the maximum insurable earnings of $62,500 for 2010.

Under the QPIP:

  • Mothers are entitled to 18 weeks paid maternity leave at a rate of 70 per cent of their income
  • Fathers are entitled to 5 weeks paid paternity leave at a rate of 70 per cent of their income
  • Parents are entitled to 32 weeks parental leave (which may be shared between the parents) paid at 70 per cent of the parents income for the first 7 weeks and 55 per cent for the remaining 25 weeks, and
  • Where parents adopt a child, the parents may share 37 weeks leave which is paid at a rate of 70% of the parent’s income for the first 12 weeks and 55 per cent for the remaining 25 weeks.23

United Kingdom

Paid maternity leave – Current entitlement is 39 weeks paid and was due to rise to 52 weeks paid in April 2010 but has been postponed indefinitely.24 Payment consists of 6 weeks at 90 per cent of full pay and remainder at a flat rate (£124.88) or 90 per cent of gross weekly earnings if that is less than the flat rate)25.

Paid paternity leave – 2 weeks at a fixed amount (£124.06).26

Unpaid maternity leave - 26 weeks (maternity or adoption) for a total of 52 weeks (paid and non-paid). Mothers are also entitled to take at least 4 weeks per year non-paid or, if they have at least one year's continuous employment, a maximum of 13 weeks’ unpaid via a parental leave request.

Unpaid paternity leave - None. A spouse or partner can request up to 4 weeks’ non-paid Parental leave annually (maximum: 13 weeks) if they have at least one year's continuous employment.27

Next Steps for Employers

Employers should prepare for the introduction of PPL.

Any pregnant employees (or expectant parents intending to take PPL) should complete application forms.

Employers should review any policies, contracts and industrial instruments they have which currently provide for paid parental leave to determine what their obligations will be when the PPL scheme commences.

It is understandable that, as a matter of public policy, the Government does not see employee entitlements going backwards. However, forcing employers who have been generous in their own scheme offerings to add the Commonwealth scheme on top of a scheme that already replaces wages for typically 8 or 12 weeks is arguably unfair. Employers with non-contractual and non-industrial instrument schemes may elect to provide both entitlements simultaneously, or reduce the benefits under its scheme – for instance by the amount of the national minimum wage, so that the employer tops up to replacement wage for its PPL period.

Further, all employment contracts can be reviewed with the consent of both parties. Where employer-paid parental leave is provided in a policy or contract of employment, it is recommended that the policy and contract be reviewed to determine how the employer-paid scheme can operate in conjunction with or to supplement the Government-funded scheme. In the event that an employer wishes to revisit the amount and terms of parental leave it provides in a policy or an employment contract – such as to provide that any policy is reduced by the Government-provided scheme, rather than providing both employer-funded and Government-funded schemes - a review should occur so that employers do not inadvertently breach the law by revoking an entitlement.

Where an employer provides a paid parental leave entitlement via an industrial instrument (such as a collective agreement or AWA or ITEA), the employer cannot withdraw that entitlement for the life of the instrument. Particular advice should be taken if an industrial instrument specifies that if a Government scheme is introduced, employer-paid parental leave will be withdrawn (or provided to supplement the Government scheme).

While employer-paid parental leave cannot be withdrawn during the life of an industrial instrument, in bargaining for a new instrument, it is open to the parties to modify obligations providing for employer- provided PPL subject to the usual industrial factors that will impact those negotiations.