The Government’s plan to prevent employees from “double dipping” paid parental leave is set out in both the Fairer Paid Parental Leave Bill 2016 and the Social Services Legislation Amendment (Omnibus Savings and Child Care reform) Bill 2017. We look at the changes currently proposed by the Bills and what employer’s should be expecting as a result of the planned amendments to the government-funded PPL scheme.

The Government’s plan to scale back paid parental leave (PPL), in the main to prevent employees from “double dipping” by receiving both government-funded and employer-provided PPL, was first announced as part of the 2015 Budget. Many of the proposed measures were previously put to the House of Representatives in 2015. However, amid community concerns, some amendments were made to the proposed measures before they were reintroduced following the 2016 Federal election.

There is still debate about the Bills, with some Senators noting that the proposed changes need further amendment before they will give their support. However, despite this ongoing discussion, the removal of “double dipping” is inevitable and so employers need to start thinking about what the proposed changes will mean for them.

What are the proposed changes?

In summary, the Government is looking to reduce the amount of government-funded PPL paid to employees who receive employer-provided PPL, (what it calls “double dipping”):

Please click here to view the table.

How the changes may affect employees – an illustrative example

Sonia earns a full-time salary of $80,000 (excluding super) per year and her employer provides 12 weeks of PPL upon the birth or adoption of a child.

Currently, Sonia would receive $18,461.54 from her employer and $12,108.60 of government-funded PPL (being 18 weeks at the National Minimum Wage). Considered together, Sonia’s PPL entitlement is $30,570.14.

Under the proposed PPL changes, Sonia would still receive $18,461.54 from her employer. However, she would only receive $5,381.60 of government-funded PPL (being 8 weeks at the National Minimum Wage). Considered together, Sonia’s PPL entitlement is $23,843.14.

Sonia is $6,727.00 worse off under the Governments proposed PPL changes. This equates to 4.4 weeks’ pay at her usual salary.

What should employers be expecting?

1. Requests for pay increases

One of the most common reactions by employees to the proposed changes will be the disappointment around the loss of government-funded PPL benefits. As shown in the example above, for some employees it will make a significant difference to the amount they will receive following the birth or adoption of a child.

On the basis that some employees have taken the government-funded PPL into account when budgeting and negotiating their salaries, employers might see employees wanting to renegotiate their remuneration in the hope of recouping some of the lost government entitlement.

2. Requests for changes to company parental leave policies

When the government PPL scheme was introduced at the beginning of 2011 some employers took the opportunity to reduce their own PPL costs by agreeing to “top up” the government minimum wage PPL payments to the employee’s usual salary level. These companies will be amongst the first to have employees knocking on their doors to have company PPL increased on the basis of the financial losses that will flow from the proposed changes.

PepsiCo recently announced that it would be increasing its company paid parental leave. Other employers are expected to follow suit, although it may take time for the changes to be made given some employers set out their PPL schemes in enterprise agreements, which usually apply for 4 years before they are renegotiated.

A period of paid leave is not the only thing employers can offer to their employees and the proposed changes are a good opportunity for employers to think outside the square in terms of parental leave benefits. For instance, an employer might continue to contribute to an employee’s superannuation whilst they are on paid or unpaid parental leave.

3. Taking more or less parental leave

Given the financial implications that the proposed changes will have for some employees, it is likely that employees who will receive less PPL under the proposed changes may return from parental leave earlier.

More and more couples are each taking a period of parental leave following the birth or adoption of a child. For example, following a period of 6 months parental leave, one parent returns to work while the other takes a period of parental leave. This prolongs the period of time there is a parent at home with the child, particularly if both parents have access to employer-provided parental leave. Should the Government’s proposed changes take effect, this trend is likely to continue – particularly in households affected by the demise of “double dipping”.

In organisations where no employer-provided PPL is provided, the proposed increase in government-funded PPL will see employees receive an additional 2 weeks of PPL. In these circumstances, employees are likely to take more parental leave.

4. Less paperwork and a reduced administrative burden

The current PPL scheme requires employers to administer the payment of government-funded PPL through their own payroll systems, recouping the cost of the PPL payments from the government.

Under the proposed PPL reforms, employers will be taken out of the equation, with employees to receive PPL through the Department of Human Services unless the employer opts in to administer the payments.

Stay ahead of the game

Although far from settled, employers should keep themselves informed of the proposed changes to government-funded PPL and consider how those changes will impact on their employees.

On the basis that company-provided parental leave schemes are used to attract and retain talent, keeping an eye on the proposed changes will also allow employers to stay ahead in the race to provide benefits that entice and retain good employees.