Paid Parental Leave - What Does it all mean?

Something to celebrate for some of my pregnant clients and friends...Australia's first national paid parental scheme, funded by the federal government commenced on 1st January 2011.  In addition to this, the government will also maintain the baby bonus scheme, which gives cash grants of just over $5,000 to new parents earning less than $75,000 after a child's birth.

Paid at $570 per week, before income tax, women earring less than $150,000 a year can take up to 18 weeks' paid leave, transferable to their partners within the first year of a child's birth.

So who exactly is eligible?
The employee must become the primary carer of the baby and must be an Australian Resident and have received an adjusted taxable income of $150,000 or less in the previous financial year.  The term 'employee' covers full-time, part-time, casual workers, contractors and self employed who satisfy the work test, ie, you must have worked just over 1 day a week for at least 10 out of the 13 months prior to the birth or adoption of the child.  Note, if you choose to return to work before you have received the full leave entitlement, you will become ineligible to receive the remainder of the payment unless your partner becomes the primary caregiver, in which case, they will then receive the remainder of the payment.

There is also a significant benefit to those running a business as being able to offer a government funded parental leave is likely to increase the number of employees returning to work after maternity leave, meaning a cost effective means for employers of retaining skilled workers.  However, from 1st July 2011, the onus will be on employers to administer the payments.

So how does it work for employers?
The Family Assistance Office (FAO) will transfer the funds to the employer, either fortnightly or in 3 instalments.  The employer will then pay the employee the parental leave payments in the normal payroll cycle, with the applicable tax deducted.  Superannuation is not payable and nor will the paid parental leave be included for payroll tax purposes.  The employer also has the choice to opt out of making parental leave payments to employees who have worked for them for less than 12 months or if they are accessing less than eight weeks of parental leave pay.  In this instance, the FAO will make the payments.