Managing uncertainty: Update on proposed changes to paid parental leave - Fiscal & Monetary Policy

On Mother's Day (8 May 2015), Federal Treasurer The Hon Joe Hockey MP announced that 'double dipping' parents would no longer be able to access the government-funded paid parental leave (PPL) scheme if they would receive the same or a greater benefit from an employer-funded PPL scheme.

Since this announcement was confirmed in the Federal Budget on 12 May 2015,¹ there has been a great deal of uncertainty about what employers should do to prepare for the changes.

Some clarification has been provided with the introduction into Parliament of the Fairer Paid Parental Leave Bill 2015 (Fairer PPL Bill) on 25 June.

KEY FEATURES OF THE FAIRER PPL BILL

The Fairer PPL Bill would amend the Paid Parental Leave Act 2010 (Cth) to effect the change in access to the government-funded PPL scheme outlined above from 1 July 2016. Specifically:

an employee seeking to access the government scheme will be required to inform the Department of Human Services (DHS) of any PPL entitlement they will receive from their employer;
the employee's government PPL entitlement will be reduced proportionately by the amount of the employer-provided PPL;
if the employer-provided PPL is equal to or more than the employee's entitlement under the government scheme (i.e. 18 weeks' pay at the national minimum wage), then the employee will not be entitled to any government-funded PPL.

The Explanatory Memorandum for the Fairer PPL Bill states that this proposed change will ensure that government funds are "more fairly targeted to parents who do not also have sufficient access to employer-provided parental leave or similar payments".

The Fairer PPL Bill also proposes to relieve employers of the "red-tape burden and compliance costs" of administering government-funded PPL payments to their employees.² This responsibility will be transferred to DHS from 1 April 2016, unless an employer elects to continue managing these PPL payments and the relevant employee also agrees.

PASSING THE SENATE?

The Fairer PPL Bill has been referred to the Senate Community Affairs Legislation Committee, with submissions closed on 30 July and a report due by 15 September 2015.

So the big question is: with Labour and the Greens opposed to the Fairer PPL Bill, will it be passed by the Senate?

Of the cross-bench Senators, two are understood to be opposed to the changes, two are in favour, and the remaining four are still considering their position.³

The Minister for Social Services has said that negotiations will take place over the terms of the Fairer PPL Bill, but has not indicated what form they might take or where concessions could be made.

In this politically uncertain environment, it is unlikely that the Bill will pass the Senate in its current form.

WHAT SHOULD EMPLOYERS BE CONSIDERING NOW?

The proposed changes are not intended to have any direct impact on employer PPL schemes. However, employers with such schemes in place are unlikely to support a government PPL scheme which has the arbitrary effect of making them (generous employers) pay for their employees' PPL, while the government covers the cost of PPL for less generous employers.

In fact the Australian Chamber of Commerce and Industry indicated, in response to the Budget PPL announcement in May that employers may look at:

withdrawing their own PPL schemes (so employees can access the government scheme); or
"rejigging" employees' remuneration packages to provide other benefits (e.g. return to work bonuses) in lieu of PPL payments.⁴

Despite the uncertainty over the Fairer PPL Bill's fate, employers should start considering how the proposed changes may impact their existing arrangements. Given the importance of employer PPL schemes as a recruitment and retention incentive, any reduction of this benefit will need to be managed carefully.

Considerable planning will also be required, as employers generally cannot make immediate changes to their own PPL schemes:

Any changes to employment contracts will require the consent of the relevant employee.
Variations to enterprise agreements are very difficult to make as they require both the agreement of employees and the approval of the Fair Work Commission. Employers should therefore wait until current agreements expire before proposing changes to agreement PPL provisions. Employers who are currently re-negotiating expired agreements may want to consider varying their proposed PPL clause to include benefits for parents other than PPL (see further below). Unions are likely to be on board with whatever will benefit their members to the greatest extent.
Policies and procedures are usually more flexible, but changes may still cause difficulties and employers should consult with their employees before doing so.

Employers might also want to consider changes they could make which would offset any reduction in employee entitlements if the Fairer PPL Bill changes do pass into law. Alternative benefits to PPL might include the employer paying for child care (or increased levels of child care), or providing parents with a bonus (or staggered bonuses) on their return to work.

Employees who are considering having children in the next few years are likely to have thought about what the changes will mean for them and what they would like to happen. Employers will benefit from canvassing these opinions and ideas and then considering how the ideas could be accommodated. Consulting with employees now will help to make future change quicker and easier to implement.

Footnotes

¹ See here.
² The Hon Scott Morrison MP, Minister for Social Services, Second Reading Speech on the Fairer Paid Parental Leave Bill 2015, House of Representatives, 25 June 2015.
³ Judith Ireland, "Blow to Abbott's paid parental leave cuts, as PUP senator calls changes 'not acceptable'", WA Today, 8 June 2015.
⁴ Joanna Mather and Misa Han, "Budget 2015: Employers will dump parental leave, business leaders say", Australian Financial Review, 11 May 2015.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.


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