10 June 2010 Issue 99
Employee entitlements to get a boost from recent announcements
Two recent announcements, the Federal Minimum Wage increase and the Federal Government’s planned paid parental leave scheme, will have significant benefits for employees.
In this Briefly the Norman Waterhouse Employment Team explore the likely impacts of these two announcements on your business.
Fair Work Australia raises minimum wage
On Thursday 3 June 2010, the specialist Minimum Wage Panel of Fair Work Australia (the Panel) increased the minimum wages contained all Modern Awards by $26 a week, or 69 cents per hour (on the basis of a 38 hour week). The increase was only $1 short of that which unions had been seeking and represents an increase over double that sought by employer and industry groups. It is worth noting that no increase was granted last year.
The increase, which will impact on all Federal system employers (but not State system employers such as councils), takes the Federal Minimum Wage to $569.90 per week or $15 per hour, and will apply from the first pay period commencing on or after 1 July 2010.
The Panel considered, based on current economic conditions, that a substantial increase was warranted. It considered that the current minimum wage was not providing an adequate safety net, as intended under the Fair Work Act 2009 (Cth). The Panel considered this was due to the significantly better than expected performance of the Australian economy during the global financial crisis.
The increase will be inserted into all Modern Awards and transitional Federal Instruments such as Division 2B enterprise awards. The Panel also used this announcement to increase the casual loading for all award/agreement-free employees to 21 per cent from 1 July 2010.
The decision comes at a difficult time for employers, who are facing increased cost pressures through the commencement of the transitional arrangements under Modern Awards, which will also occur on 1 July 2010. Please contact a member of the Employment Team if you would like to discuss the specific impacts of this increase on your business.
Paid parental leave likely to become a reality in 2011
A Bill to implement the Federal Government’s paid parental leave scheme was introduced into Federal Parliament on 12 May 2010. The Paid Parental Leave Bill 2010 (Cth) (the Bill), now supported by the Paid Parental Leave (Consequential Amendments) Bill 2010 (Cth), (the CA Bill) introduced on 27 May 2010, will provide a government-funded scheme of up to 18 weeks paid parental leave at the Federal Minimum Wage, now $569.90 per week.
The introduction of the Bill follows an inquiry conducted by the Productivity Commission, which found that a paid parental leave scheme would support child and maternal health, increase retention rates for business and reduce their training and recruitment costs, and counter some disincentives currently contained in the taxation and welfare systems. The Federal Government estimates that around 148,000 parents will be eligible for paid parental leave each year.
In the event that the Bill passes the Federal Parliament, the scheme will be available from 1 January 2011, with claims being able to be lodged with the Family Assistance Office from 1 October 2010.
Eligibility
The Bill provides that paid parental leave will be made available to primary care givers who give birth to, or adopt, a child after 1 January 2011. The primary carer, who can be the mother or father of the child, must pass the Work, Income and Residency Tests in order to qualify for payment under the scheme.
The Work Test
To satisfy the Work Test, the primary carer must have
- been engaged in work for a total of at least 10 of the 13 months preceding the expected birth or adoption of the child. Employees may not have a break of more than eight weeks between any two consecutive work days during that period; and
- undertaken at least 330 hours of paid work during the 10 month period, which equates to an average of one full day’s work a week.
Ostensibly, provided they meet the eligibility criteria, the scheme will be available to all persons engaged in work, whether they be in the private sector, state public sector or local government sector. The Bill also provides that the scheme will be open to parents who work in their own or a family business.
Under the Bill, a work day is calculated as a day on which the primary carer worked for at least one hour. Full-time and part-time employees, casuals, contractors and the self-employed may all be eligible to claim the entitlement.
The Income Test
To satisfy the Income Test the primary carer must have an adjustable taxable income of $150,000 or less in the financial year prior to the birth or adoption of the child, or the date of the claim (whichever is the earlier).
The Residency Test
As is consistent with other types of Federal Government family assistance payments, in order to qualify for payments, the primary carer must be an Australian citizen, hold a permanent visa, be a New Zealand citizen who arrived in Australia on a New Zealand passport, or hold a specified temporary visa.
Administration
Although the scheme will be fully funded by the Commonwealth, employers will still be responsible for administering it for certain eligible employees. Therefore, it is envisaged an employer will receive funds from the Commonwealth in anticipation of its employees taking leave.
To assist with transition, employer administration of the scheme is to be phased in over six months. Although Employers may opt to provide eligible employees with parental leave pay from 1 January 2011, they will not be required to do so until 1 July 2011. If an employer does not opt to pay an eligible employee within the six month transition period, the employee will need to liaise directly with the Family Assistance Office to access parental leave pay.
Concurrent entitlements
The entitlements under the Bill may be taken before, after or concurrently with other paid parental leave entitlements. The Bill prohibits employers from reducing an existing paid parental leave entitlement already available to an employee under an industrial instrument, contract or policy proportionately to the amount payable to that employee under the Bill.
Where an employer seeks to reduce their own obligations under an existing industrial instrument or contract, any reduction will need to be by way of negotiations to vary or replace the relevant terms of the instrument or contract. Where an employee’s entitlement to employer funded paid parental leave has its genesis in a policy only, rather than an instrument or contact, such a variation may be simpler for the employer, depending upon the terms of the policy and whether the policy is incorporated into the employee’s contract.
However, in most cases, the new entitlements under the Bill will be in addition to existing paid parental leave benefits. For Federal system employers, parental leave pay will also complement parents' entitlements to unpaid parental leave under the National Employment Standards.
Eligible parents could also receive family tax benefit Part A while participating in the scheme. Parents who do not meet the eligibility criteria for paid parental leave will still be entitled to family payments, such as the baby bonus and family tax benefit Part B.
Under the CA Bill, recipients of parental leave payments cannot receive the baby bonus. Parental leave pay will also be subject to PAYG withholding tax, and employees will be able to salary sacrifice their parental leave pay for non-cash remuneration where their employer offers that arrangement.
Political climate
The Federal Government estimates that the majority of families will be about $2,000 better off taking paid parental leave (after tax has been paid and taking into account other family assistance) than if they elect to take the baby bonus. The Government is promoting the scheme as a major win for families.
The Federal Opposition appears to have offered tentative support for the scheme, but prefers a more generous approach, to be funded by a levy on all employers. The Opposition’s scheme would enable employees to take paid parental leave at their ordinary rate of pay, rather than at the Federal Minimum Wage. It remains to be seen whether the Coalition, minor parties and independents will seek to block the scheme in the Senate, or make substantive amendments.
Implications for employers
Employers will not be required to make parental leave payments to employees until they have received sufficient funding from the Family Assistance Office. The Government has already made undertakings to pre-pay employers to avoid cash-flow problems.
Employers should consider whether it will be necessary to review and amend their payroll systems to enable them to properly administer parental leave payments. They may also consider whether any existing parental leave policies require amendment, or whether they will seek to renegotiate contracts and workplace agreements in view of the pending scheme. Employers may also consider adopting ‘payment matching’ polices for those employees not eligible to participate in the Government’s scheme.
Employers should also be aware that, under the Bill, the Fair Work Ombudsman will have powers to investigate employers who fail to pay, or delay, paid parental leave payments.
Please contact Sathish Dasan, Partner at Norman Waterhouse Lawyers, if you seek advice on the specific implications of the government’s proposed paid parental leave scheme on your organisation.
Sathish can be contacted by telephoning 8210 1253 or mobile 0412 823 850, or by emailing him at sdasan@normans.com.au
Team Members:
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