The Unintended Consequences of Budget’s Parental Leave ‘Double Dip’ Backflip

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The Unintended Consequences of Budget’s Parental Leave ‘Double Dip’ Backflip

As part of the Federal Budget, the Federal Government has announced radical changes to the interplay between the current government-funded parental leave scheme and any similar paid schemes operated by employers.

Under the current Federal Government scheme, eligible working parents can receive government-funded pay when they take time off from work to care for a newborn or recently adopted child.

From 1 July 2016, parents will no longer be allowed to access the government-funded paid parental leave scheme if their employer provides a more generous scheme. The proposed changes may have some unintended consequences.

These changes may encourage some employers to consider withdrawing their existing schemes (whether they go beyond the government-funded scheme or not), and to use the money saved to offer employees other attractive benefits or payments in addition to statutory parental leave pay.

Alternatively, where an employer wishes to maintain their own scheme, they may consider reducing the level of payments to employees if the payments (and the cost to the employer) were set on the basis that those payments would act as “top ups” only to the government-funded parental leave pay employees would receive. Depending on how payments are calculated and described in the employer-funded scheme, maintenance of those schemes may result in an employer being now required to pay each of its eligible employees up to an additional $11,540 before tax. Of course, whether an employer can lawfully vary, withdraw or replace their existing paid parental leave scheme will always need to be carefully considered and expert assistance should be sought.

Since the introduction of the government-funded scheme, the Coalition Opposition (as it then was) and now Federal Government has proposed a number of changes to potential payment levels under the scheme – it has been a roller-coaster of a ride:

In May 2013, the “Coalition’s Policy to Improve the Fair Work Laws” was released and proposed establishing a new scheme giving mothers 26 weeks’ paid parental leave at the equivalent of their full replacement wage or the national minimum wage (whichever is greater) up to a maximum of $75,000, plus superannuation contributions;
In May 2014, the Federal Government announced that for the 1 July 2015 start of its new scheme, the maximum parental leave payment would drop from $75,000 to $50,000; and
in late 2014, the Federal Government signalled that it was re-examining its proposed changes to the scheme in light of the Productivity Commission’s report into Childcare and Early Childhood Learning. The report determined that the proposed changes to the scheme were unlikely to bring about significant increases in workforce participation beyond those occurring under the existing scheme, and as a result, the Federal Government stated that it would shift its focus to childcare arrangements.
In February 2015, the Federal Government finally abandoned its proposed changes to increase paid parental leave payments.

It has now been announced that from 1 July 2016, parents will no longer be allowed to access the government-funded paid parental leave scheme if their employer provides a more generous scheme.

The previous Labor Government introduced a national paid parental leave scheme in Australia on 1 January, 2011. Under the current government-funded scheme there are two types of payments – Parental Leave Pay and Dad and Partner Pay. Parental Leave Pay provides eligible working parents up to 18 weeks pay calculated at the national minimum wage rate (currently, $16.87 per hour or $640.90 per 38 hour week (before tax)).

Where a parent is offered the opportunity to receive higher paid parental leave payments under their employer’s scheme, then the Federal Government considers that that parent is “doubling dipping” by also receiving 18 weeks’ pay at the minimum wage rate ($11,540 before tax) under the Federal Government scheme. Parents who have access to an employer scheme that is more generous will no longer be eligible for additional government-funded parental leave pay.
If an employer scheme offers a lower level of payments, then the parent will receive “top up” payments so that they receive the same as under the government-funded scheme.

Not surprisingly, these proposed changes have come in for loud criticism for various quarters. These criticisms include that:

The government-funded scheme was only ever intended to be a basic scheme that would be added to, and complemented by, employer-funded schemes; and that the current scheme does not provide for superannuation contributions to be paid in conjunction with those payments. These contributions can often be provided for under an employer-funded scheme, meaning parents will not increase their superannuation balances during any period of leave. This may have a result in further widening what is already seen as a gap between retirement savings for those working, and those taking time off work on parenting duties.

Legislation to implement this change is proposed to be introduced into Federal Parliament in August 2015, but it remains to be seen whether the Federal Government can garner the necessary support for these changes to be introduced into law.

Prior to these changes coming becoming law, employers may nonetheless wish to consider whether or not they wish to continue to operate their own employer-funded paid parental leave schemes, and if so, whether those schemes need to be amended in light of these announced changes

(source BRW online)

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