Introduction

With 1 January 2013 – the date when the Federal Government's paid parental leave scheme is extended with the new ‘dad and partner pay’ payment – fast approaching, it is a good time for employers to review their parental leave policies.

As legislative parental leave schemes and voluntary company policy entitlements often run side-by-side, employers may be paying more than their fair share. They should identify legal obligations and decide on what level of discretionary benefits to offer in addition.

Parental leave pay at lower cost to the employer?

A number of employers provide voluntary paid parental leave above and beyond the taxpayer funded Paid Parental Leave Act (PPL) standard. Generosity is legitimately encouraged in parental leave policies for, amongst other reasons, providing competitive employment conditions, providing seamless financial transition from work to parental leave and back to work and general employee retention.

The measuring stick for parental leave pay has generally been maintaining the employee’s ordinary wage for the relevant period. So, why do some employers double-up by paying this without taking into account the Government scheme?

As a matter of public policy, the Government does “not want employee entitlements to go backwards. However, forcing employers who have been generous in their own scheme offerings to be the paymaster for wage payments under the Commonwealth scheme on top of a scheme that already replaces wages for a number of weeks is arguably unfair. The Government recognised this unfairness in the explanatory memorandum to the Paid Parental Leave Act stating that employers can “seek to negotiate with employees to amend existing PPL provisions in light of the introduction of the new PPL scheme.”

By amending voluntary parental leave policies, employers may be able to save up to $606.40 per employee on parental leave per week while continuing to fully support their employees on parental leave to the level of their ordinary wage for the relevant period. A review of voluntary parental leave policy can ensure the employee obtains the total amount of parental leave pay under the policy whilst setting off amounts the employee receives under their PPL entitlements.

In most cases, employers are the 'paymasters', forwarding PPL payments to their eligible employees on behalf of the Family Assistance Office. As a result, employers have the ability to easily determine set-off amounts and determine the relevant top-up amount to match the policy entitlement.

Leave for Dads and Partners

A new taxpayer-funded entitlement will operate from 1 January 2013. Fathers and partners (including same sex couples) are entitled to payment of up to two weeks ‘pay’ from the Federal Government if they leave to care for a baby or newly adopted child born (or placed) on or after 1 January 2013. Leave must be taken in the first 12 months of the child’s life (or placement for adoption). The payment known as “dad and partner pay” is currently $606.40 per week gross.

Employers should similarly review their voluntary parental leave policy for application to Dads and Partners. A review of voluntary policy running side-by-side with the new legislative scheme could save employers $606.40 per week while continuing to fully support their employees on paternity leave to the level of their ordinary wage for the two-week period.

Do entitlements under your policies provide for fixed term employees?

Most employer policies were not prepared with fixed-term employees in mind.

As a result, entitlements under their policies do not pro-rate or cease entitlements on termination of fixed term employment, and there may be some complexity in determining the employee’s entitlement. This may arise where an employee applies for parental leave for a period which runs past the end date of their employment. To avoid removing entitlements from employees who may already be pregnant and reasonably relying on the policy, the policy change could come into force on 10 months’ notice.

Replacement employees

New statutory obligations provide that, where an employer engages a replacement employee to perform the work of an employee on parental leave, the replacement employee must be notified that their engagement is temporary and may be brought to an end before the planned end date in certain circumstances (e.g. if the employee on parental leave returns to work early following certain changes of circumstances).

 What should employers do?

With Australia in the midst of the biggest baby boom in our history, the politics of ‘working families’ at play in an election campaign, and an increasing awareness and uptake of parental leave by employees, employers are referring to their parental leave policies more than ever. With this in mind:

  1. Employers with voluntary parental leave policies should review their policies to consider whether to make their maternity, paternity and partner policy entitlements apply in combination with, instead of in addition to, the PPL scheme, capped at ordinary wage level. Of course, employers need to take into account needs for providing competitive employment conditions, providing seamless financial transition from work to parental leave and back to work and general employee retention.
  2. Employers who engage fixed-term employees should review the policy application to fixed-term employees. 
  3. Employers should amend the terms of new replacement employees’ contracts from 1 January.