Don’t get caught out by red tape in parental leave payments

Robert Minkus, GM MyHR Australia
By Robert Minkus, GM MyHR Australia

Small and medium-sized enterprises (SMEs) are getting caught out during these difficult economic times by an administrative change in the way the government’s Paid Parental Leave is passed on to employees. And it can cost money.

Parental Leave Pay used to be paid by the Federal Government directly to employees, but a change to regulation means businesses must be registered with Services Australia in order to receive the funds from the government, which they then pass on to the employee taking paid parental leave.

Businesses that aren’t registered must effectively be “the bank” for the leave pay, costing them $753.90 per employee per week.

Many employers are unaware of the change and the need to register with Services Australia (due to the lack of information around the introduction of the changes). To make matters worse, the registration process is complex and can take several weeks.

We’ve heard of numerous SMEs that have been financially caught out in their cash flows. Others are finding the registration process so time-consuming and bureaucratic that they give up before finishing, which winds up costing much more than cash flow.

Our advice is don’t wait for the last minute to sort this out: Give yourself plenty of time and get a head start on the registration process as soon as you know an employee is going to take parental leave.

How the Paid Parental Leave scheme works

The Paid Parental Leave scheme provides a child’s primary carer with the adult minimum wage for up to 18 weeks (currently $753.90 per week).

Only employees that earn less than $150,000 per annum and who have more than 12 months’ service are eligible to receive the subsidy from your business (there are some other eligibility criteria for employees, e.g. meeting a ’work test’).

When the scheme was introduced in 2011, the subsidy was mostly paid from the government directly to the employee taking parental leave.

This process was changed in 2019 and businesses must register with Services Australia, then receive funds from the government and pass them on to the employee as you would pay their salary or wages (minus PAYG and other regular deductions).

Partners of the primary carer can receive up to 2 weeks’ pay, but the government pays this to the employee directly.

Find out more about the Paid Parental Leave scheme at the Services Australia website.

Problems with the registration and payment process

Businesses registering with Services Australia have found the process onerous and lengthy. It involves being authenticated and can require involvement of the company accountant to validate the business’ legitimacy.

Until employers are registered with Services Australia as an approved employer, they are unable to receive the Parental Leave Pay funds.

However, employees claiming Parental Leave Pay register with Services Australia separately, and once they have been approved, the business is obliged to pay them for their parental leave (from the date they commence their parental leave).

Newly registered companies may still have to wait to receive funds, as the government pays them in instalments, either fortnightly or 6-weekly.

Our advice

Once an employee notifies the business that they are intending to take parental leave, start the registration and approval process with Services Australia. Contact your accountant.

Employees are required to give you 10 weeks’ notice of their intention to take paid parental leave, which should give you plenty of time to sort out registration.

Don’t leave it any later.

No company needs to be carrying any added expense during these uncertain times. Employers and managers don’t need any extra stress over finances and, just as importantly, a parent with a new child does not need any anxiety or confusion about getting parental leave pay.