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An uncertain future for the government’s paid parental leave scheme

Submitted By Firm: Corrs Chambers Westgarth

Contact(s): John Tuck

Author(s):

By Nick Le Mare (Partner), Georgina North (Senior Associate) & Marissa Dooris (Graduate Lawyer)

Date Published: 6/12/2014

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A number of key details of the government’s proposed paid parental leave (PPL) scheme are unclear, creating uncertainty for employers. The fate of the scheme is also unclear in light of the Budget and the soon to be changed composition of the Senate.

KEY FEATURES OF THE SCHEME

In August 2013, the Coalition (then in opposition) proposed a Paid Parental Leave (PPL) scheme to take effect from 1 July 2015. A number of components of the PPL have been changed by the now government since it was first proposed. The terms of the proposed PPL as it now stands and a comparison with the current PPL scheme is set out below:

 

 

Proposed scheme

Current scheme

Primary entitlement

26 weeks paid leave for the primary carer at their actual wage or the national minimum wage (whichever is greater), with payments capped at $50,000.

18 weeks paid leave at the national minimum wage.

Eligibility

All workers (including casual, seasonal, contract and self-employed workers) who have worked for at least 10 out of the 13 months prior to the birth or adoption and at least 330 hours in that 10 month period (just over one day a week), with not more than an eight week gap in work.

The same eligibility criteria apply, except those who earn over $150,000 are excluded from the scheme.

 

Secondary entitlement

Two weeks paid leave for secondary carers at their actual wage or the national minimum wage (whichever is greater), with payments capped in line with the primary carer’s salary and the leave deducted from the primary carer’s leave.

Two weeks paid leave at the national minimum wage, in addition to the primary carer’s leave.

Administration

Payments made and administered via the Department of Human Services (DHS), not employers.

Payments under the current scheme made via employers following a determination of employee’s eligibility by DHS.

Superannuation

Superannuation contributions at the mandatory rate to be made on PPL payments to primary and secondary carers.

No provision for super contributions for carers on PPL.

The government has said that the PPL scheme will be funded by a 1.5% levy on companies with an annual taxable income greater than $5 million. The imposition of this levy is intended to coincide with the proposed 1.5% reduction in corporate tax rate, thereby making the levy “revenue neutral” for an interim period. There has been debate about whether or not the levy will be sufficient to cover the actual cost of the scheme. We can expect further information and debate about this in due course.

UNKNOWN detailS

Some of the detail of the scheme remains unclear, including:

  • Its relationship with existing employer PPL schemes: it has been reported that the government plans to use the social services power in the Constitution to implement the scheme. COAG agreed in principle that State public sector employees will be covered by the scheme but arrangements with the States have yet to be finalised. The government has said that employees will be prevented from “double dipping”[1], however it is unclear how the scheme will impact on more generous PPL entitlements in industrial agreements or employer policies in the private sector.
  • How “income” will be calculated: the premise of the scheme is income replacement. It may be difficult to calculate the “income” of some eligible workers who do not have a defined or stable salary, such as contractors, the self-employed or workers who rely on at risk bonuses or commissions.
  • Who will pay superannuation: it is unclear whether the government or employers will be responsible for making superannuation contributions on payments made under the scheme.
  • Which businesses will pay the PPL levy: it is unclear whether the levy will apply to businesses such as partnerships and not-for-profit associations.

Political hurdles

The government can be expected to face challenges in the Senate when negotiating passage of the legislation to introduce the scheme.

Labor has indicated it will not support any changes to the current scheme. Although the Greens are supportive of the government’s current proposal (with payments capped at $50,000), they have indicated that they are not likely to back it unless changes are introduced to the Fair Work Act 2009 (Cth) that link PPL to the entitlement to take parental leave and strengthen the right for mothers to return to work on flexible arrangements.

One Liberal backbencher recently described the scheme as friendless and a number of Coalition Senators have indicated they would vote against it. Nationals Senator John Williams has proposed an alternative scheme to extend the current 18 weeks PPL at the minimum wage to 26 weeks, plus super.

Although Clive Palmer of the Palmer United Party previously indicated opposition to the scheme, he has said more recently that his party may be willing to support Senator Williams’ proposal if it is extended to all Australians (not just working parents). This amendment would change the nature of the scheme from a workplace entitlement to a form of “baby bonus”.

what does this mean for employers?

The uncertain fate of the scheme and the lack of clarity about its detail creates uncertainty for employers.

Until further information is known, employers are unable to properly consider the impact of the proposed scheme on their own PPL arrangements and in particular, whether changes to their own arrangements ought to be made.

Prime Minister Abbott’s enthusiasm for the scheme has generated a great deal of discussion and debate about PPL as a workplace entitlement. In circumstances where passage of the scheme is unsuccessful, employers may find there is an increasing expectation among employees for enhanced employer-funded PPL programs.

WATCH THIS SPACE

Both Houses of Parliament are sitting between 16 June 2014 and 26 June 2014. It is unclear whether a proposed Bill will be introduced during this period. As at 11 June 2014, Treasury is still considering tax implications of the levy.[2] We will provide a further update when more information is known.


[1] Joanne Mather and Matthew Dunckley, “Government releases PPL scheme details”, Australian Financial Review, 23 January 2014, p 7.

[2] Fleur Anderson & Laura Tingle, “Tax issue holds draft law back”, Australian Financial Review, 11 June 2014, p 7.

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