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Home > PAID PARENTAL LEAVE - WHAT IT MEANS FOR EMPLOYERS

PAID PARENTAL LEAVE - WHAT IT MEANS FOR EMPLOYERS

24 Aug 2010
PAID PARENTAL LEAVE - WHAT IT MEANS FOR EMPLOYERS
 
 
The new paid parental leave (PPL) scheme begins in Australia on 1 January 2011. This article takes a look at the eligibility criteria and an employer's obligations under the new law.
 
 
INTRODUCTION
 
Before Parliament adjourned for the Winter recess on 24 June, which turned out to be the final sitting before the Federal Election, it passed the Paid Parental Leave Act 2010 the Act introduces a PPL scheme for the first time in Australia, and brings the country into line with most other advanced economies in the world. the scheme has several connections with the tax system including:
  • Eligibility depends upon, among other things, your adjusted taxable income (ATI); and
  • Payments will be taxable but not subject to superannuation guarantee (SG).
 
THE BASICS
 
The PPL scheme provides for a Government funded wage of up to 18 weeks at the national minimum wage (currently $569.80 per week before tax) to eligible primary carers who either have or adopt a child on or after 1 January 2011. Therefore primary carers who gave birth or adopt before this date are not eligible in respect of those children - the scheme is only for 'new children'.
To be eligible for the scheme, a primary carer in paid work must:
  • Have worked continuously with one or more employers for at least 10 of the 13 months before the expected date of birth or adoption;
  • Have worked at least 330 hours in those 10 months (which is equivalent to approximately on full day of work each week); and
  • Have an ATI of $150 000 or less in the financial year prior to the date of birth or adoption of the child.
 ATI is the sum of your:
  • Taxable income;
  • Reportable fringe benefits x 0.535;
  • Tax-free pensions or benefits (e.g. disability support pension, wife pension etc);
  • Income from overseas not reported in you tax return (e.g. an overseas pension that is not taxable in Australia);
  • Reportable superannuation contributions (e.g. personal deductible contributions, salary sacrificed contributions); and
  • Total net investment losses (e.g. losses on your investment property or shares);
 Less
  • Child support you have paid.
Example
Loren had a baby on 1 February 2011. For the 2009/2010 income year, she had the following income:
  • Taxable income of $140 000;
  • 23AG exempt income of $5 000
  • Net rental property losses of $6 000
  • Net financial investment losses of $2 000
  • Reportable fringe benefits of $1 000.
She also made child support payments of $1 600.
Loren's ATI for 2009/2010 is $151 935 and is calculated as follows:
 
Taxable income                                                                        $140 000
23AG exempt income                                                                     5 000
Net rental property loss                                                                  6 000
Net investment loss                                                                        2 000
Reportable fringe benefit                                                                   535
($1 000 x 0.535)
Less
Deductible child maintenance expenditure                                   $   1 600
ATI                                                                                         $151 935
 
Because her ATI is more than $150 000 in the year prior to the birth, Loren is not eligible for PPL. the example demonstrates just how broad the concept of ATI is (it even adds back certain losses).
 
Eligible workers include full-time, casual, part-time employees, self-employed and contractors.
 
EMPLOYER OBLIGATIONS
The eligible worker will receive the payment through their employer. However, an employer will only be required to make the payments where the employee has completed 12 months of continuous service prior to the birth or adoption of the child and they are an Australian-based employee.
The employer will receive the payments direct from the Family Assistance Office in advance of them making the payment to the employee through the regular weekly/fornightly/monthly payroll. Therefore the scheme will have no detrimental cash flow impact on the employer. Other points that employers should note are:
  • PPL needs to be paid in the normal payroll cycle, not as a lump sum;
  • Tax must be withheld from each payment in accordance with the PAYG tax tables;
  • SG does not need to be paid on the amount;
  • Payroll tax does not need to paid on the amount;
  • The scheme is separate from any employer-provided paid leave (e.g. annual leave) - employer must still meet their obligations in this regard;
  • Employers must declare the PPL amounts as taxable income, and then claim the amounts paid as a deduction; and
  • It is not clear from the legislation whether amounts will need to be shown on the employee's payment summary.

 


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