Paid Parental Leave changes: A closer look at the detail.

Enhanced Paid Parental Leave offers more flexibility in the income test, more flexibility in who uses the paid leave days, and removes disadvantage to single parents.

Announced in the Women’s Budget Statement (page 38), is the proposed overhaul of the Paid Parental Leave scheme.

It’s important to note that these changes are still subject to consultation with stakeholders. In this article we take a careful look at the wording of the Budget 2022 Statement to work out how the new scheme may work.

In this article, “birth mother” can also refer to “adoptive parent”.

Paid Parental Leave Change 1: The income test - a second chance if you breach the limit

Currently, eligibility for payment is based on the birth mother, and to qualify they must earn less than $151,350 in the financial year prior to giving birth.

If eligible, the birth mother can receive taxable payments totalling about $13.9k with rules around the timing of payment and deadlines for application.

Meanwhile, dads and partners are eligible for a payment for 2 weeks at the same minimum wage rate, worth about $1.54k - with the same income test, but different conditions attached to receiving the payment. Single parents do not get the benefit of this payment.

It is important also to note that these payments are at a fixed rate - being on the cusp of cut-off will not result in a small “tapered” rate.

This means even if a family qualifies with little margin to spare, the full benefit of payments up to $15.5k for a couple, or $13.9k for a single can be accessed.

A second limit

The new system highlights that no household will be worse off under these changes - so I assume current eligibility criteria will remain intact.

Under the changes outlined in the budget, the income test used to determine eligibility can be measured by family, instead of by primary carer income limit, depending on the situation.

This would be the case if the income of the birth mother was above the $151k limit - there is now scope to look to the family income to determine eligibility.

So if income is in excess of $151k in the previous financial year - the next step is to examine whether the family income is below the limit of $350k.

It should also be noted that the current Child Care Subsidy Percentage for reaches a limit at a family income of $354,305 - meaning that for this government, a family income of c$350k is the upper limit for government support - if you are working.

How will the new test work?

It looks like anyone earning less than $151k will still be eligible, and those earning above this limit will be assessed in terms of family income.

This is implied in the statement that no family will be worse off.

Consider the following scenarios that would be eligible:

A woman earning $250k income may still be eligible for the payment if her partner is earning less than $100k

A single parent earning up to to $350k limit (in the year prior) and qualify.

A high income woman with a non-working spouse earning up to $350k.

A woman earning up to $151k (in the prior year) - means her partners income is not assessed.

Paid Parental Leave Change 2: More flex in the payment itself

The scale of the overall available payment for a couple will not change.

Currently there is scope for up to 20 weeks of payments (100 days) at a minimum wage of $154.51, That is $15,451 in total.

Currently - 18 weeks is available to the birth mother (with changes to this only under exceptional circumstances), and 2 weeks claimable as Dad and Partner pay.

For single parents, 2 weeks of dad and partner pay is, of course, not available.

Under the new scheme - the full 20 weeks is up for grabs, and it seems the mix between who gets paid has more flexibility.

This may even be without distinction of primary or secondary carer as outlined in the announcement

Importantly - in the case of single parent families, the maximum amount of payment has been increased to “absorb” dad and partner pay - so single parent families do not miss out.

Fixing dad and partner pay

Dad and Partner Pay has only been payable if the claimant is not working AND not receiving any payment in the days acting as primary carer.

For company employees this has mean’t taking unpaid leave.

This has not been viable for dad’s and partners who have otherwise been able to claim leave from their employers at a better rate of payment. The reason for this is that the payment, at a rate of $154.51 per day, is equivalent to a payment at an annual income level of about $40k.

If you are earning more than this and can take leave at a higher rate of pay, taking this payment reduces family cashflow at a time when money really counts. This means many dad’s and partner’s have not taken up the payment - not necessarily a bad thing if it means employers are stepping up with leave options.

The new system takes this payment and includes it in the overall mix with the split being able to managed by the family.

This payment is able to be taken in addition to employer leave payments, so the previous problem will no longer be the case, expect claims for the full 20 weeks to be the norm.

Employers take note

Making the most of all the government support available, as well as the support provided by employee parental leave schemes has just got more complicated - and a little bit more out of the hands of employers to support.

The key reason for this is that now Parental Leave Pay could be a function of family income, instead of the birth mother employee - it will not be in the realm of the employer to know what kind of Government Parental Leave Pay the employee should expect.

Employers who direct Government Parental Leave Payments, or who “top-up” government payments should expect a new set of rules - privacy comes to mind, as the eligibility for Parental Leave Payment could be based on partner income.

For new parents - managing Government entitlements, understanding employee parental leave offers, planning out tax costs and working out the level of government support when planning childcare options is complicated work - made all the more difficult amongst the work of a new baby in the house.

Help with planning for this complexity will reduce stress for employees, and ensure a smooth return to work. A great result for employers.

What if a baby is already on the way?

Under current rules - Paid Parental Leave must be claimed before baby turns 1. Conceivably (pardon the pun), a family with baby due in (say) 6 months (October) could then be eligible to claim 20 weeks leave within a year if this is started 20 weeks before October 2023 - say May 2023, which would be after the new rules come in.

Those families currently expecting a baby and who may miss out on support may be able to access the new system, even though it is not expected to come into play until March next year.

Planning for, understanding, and making the most of opportunity will take careful planning…a situation to watch!

Ready to help your employees take the financial fear out of their baby’s first year? Call us.

Australian companies are overhauling their parental leave and carer policies to be more generous, more inclusive and more flexible.

Help with complex government rules saves time, and makes planning easier.

Call us to find out more.

Brendan Ryan

0412 181 031