Chapter 1Introduction
Referral of the inquiry
1.1On 30 March 2023, the Senate referred the following matter to the Education and Employment References Committee (committee) for inquiry and report by 31August 2023:
The potential impacts of the Commonwealth Paid Parental Leave (PPL) scheme on small businesses and their employees, both before and after legislative changes come into effect from 1 July 2023, with particular reference to:
(a)the experiences of small businesses in administering the Parental Leave Payment (PLP) on behalf of the Commonwealth, including an assessment of any administrative impacts, cost impacts and any challenges transacting with Services Australia;
(b)the experiences of employees accessing the scheme and receiving the payment through their employer or through Services Australia;
(c)the relative contribution of current arrangements in preserving the relationship between small business employers and employees while an employee is on parental leave;
(d)current Commonwealth PPL arrangements acting as an incentive or disincentive to employment and boosting female workforce participation in small businesses;
(e)the merits and costs of an opt-in or opt-out model for small businesses to administer the Commonwealth PLP, or other arrangements that would help to alleviate any administrative or financial burdens;
(f)the process by which the Department of Social Services and Services Australia could best engage with small businesses and their employees in the design and implementation of any future changes to PPL policy; and
(g)any other related matter.
Conduct of the inquiry
1.2The committee advertised the inquiry on its website, issued a media statement, and invited submissions from a range of relevant stakeholders, including government agencies, industry and employer associations, research and advocacy groups, academics, and unions by 19 May 2023.
1.3The committee received 17 submissions, which are listed at Appendix 1.
1.4The committee held one public hearing in Canberra on 14 August 2023. A list of the witnesses who appeared at this hearing is provided at Appendix 2.
1.5Links to public submissions, Hansard transcripts of evidence and other information published by the committee for this inquiry are available on the committee's website.
Acknowledgements
1.6The committee thanks those organisations and individuals who contributed to this inquiry by providing submissions and giving evidence at public hearings.
Structure of the report and references
1.7The report comprises two chapters, including this introductory chapter which provides background about the Commonwealth PPL scheme (including the changes that came into effect on 1 July 2023) and its administration.
1.8Chapter 2 explores participant views on the experiences and impacts of the Commonwealth PPL scheme.
1.9References in this report to the Committee Hansard for the public hearing are to the proof transcript. Page numbers may vary between proof and official transcripts.
Definition of small business
1.10The committee recognises that there is no single definition of a small business in Australia. For example, the Australian Bureau of Statistics defines a small business as one with between five and 20 employees, the Fair Work Act 2009 defines a small business employer as one that has fewer than 15 employees, while the Australian Taxation Office defines a small business entity as an individual, partnership, company or trust that is carrying on a business and has an aggregated turnover of less than $10 million.
Commonwealth PPL scheme
Design and establishment of the Commonwealth PPL scheme
1.11The Commonwealth PPL scheme was established on 1 January 2011, with its operation and eligibility requirements set out in the Paid Parental Leave Act 2010 (the Act). It applies to all employers, regardless of size, and is available to eligible full-time, part-time, casual, seasonal, contract and self-employed workers.
1.12According to the Department of Social Services, the Department of Employment and Workplace Relations, and Services Australia (departments), the design of the PPL scheme was based largely on the model put forward by the Productivity Commission in its 2009 report, Paid Parental Leave: Support for Parents with Newborn Children. A key deviation from the model proposed by the Productivity Commission was the inclusion of an income test, which targeted the payment to individuals below a certain income threshold.
1.13In its report, the Productivity Commission highlighted the importance of employer involvement in PPL schemes and noted the use of employer roles in comparable international arrangements. Further, the Productivity Commission found that the employer role should involve 'not only top-ups but also scheme administration'.
1.14According to the Productivity Commission's report, this arrangement would mimic existing arrangements within employment contracts thereby helping both employers and employees to view parental leave as a standard employment arrangement. This, in turn, would help to promote employment continuity and workplace retention and would also signal that taking a reasonable period of leave to look after children is a normal part of working life.
Objectives of the Commonwealth PPL scheme
1.15Broadly, the objectives of the Commonwealth PPL scheme are to:
signal that taking time out of the paid workforce to care for a child is part of the usual course of life and work for both parents; and
promote equality between men and women and balance between work and family life.
1.16The PPL scheme is also designed to help employers:
retain skilled staff by encouraging employees to maintain a connection with their workplace;
improve family friendly workplace conditions without employers needing to fund paid parental leave themselves; and
in the longer term, by increasing parents' workforce participation.
Components of the Commonwealth PPL scheme
1.17Until recently, the PPL scheme comprised two components—Parental Leave Pay (PLP) and Dad and Partner Pay (DaPP).
1.18PLP provides eligible primary carers with payment for up to 18 weeks at a rate based on the national minimum wage. The 18 weeks are comprised of a 12-week PPL period, which must be taken as a single block within 12 months of the birth or adoption, plus six weeks of flexible PPL, which can be taken in blocks or one day at a time within two years of the birth or adoption.
1.19The objectives of PLP are to provide financial support for primary carers (mainly birth mothers) in order to:
allow primary carers to take time off work in the two years following a child's birth or adoption;
enhance the health and development of birth mothers and children;
encourage women to continue to participate in the workforce;
promote equality between men and women, and the balance between work and family life; and
provide primary carers with greater flexibility to balance work and family life.
1.20DaPP provides eligible fathers or partners with payment for up to two weeks at a rate based on the national minimum wage. DaPP must be taken as a single two-week block. The objectives of DaPP are to provide financial support to fathers and partners in order to:
increase the time fathers and partners take off work around the time of birth or adoption;
create further opportunities for fathers and partners to bond with their child; and
allow fathers and partners to take on a greater share of caring responsibilities and to support mothers and partners from the time of birth or adoption.
1.21Both the PLP and DaPP are subject to an income test and are not available to claimants with an annual adjusted taxable income greater than $168 865.
Recent changes to the Commonwealth PPL scheme
1.22While there have been various amendments to the Commonwealth PPL scheme since 2011, the most recent—contained in the Paid Parental Leave Amendment (Improvements for Families and Gender Equality) Act 2023—amended the Act to implement measures proposed in the current Government's October 2022 Budget and previous Government's March 2022 Budget.
1.23These changes affect employees whose children were born or adopted on or after 1July 2023 and include:
a new 20-week PLP entitlement (which replaces the 18 weeks of PLP and two weeks of DaPP), with two weeks of PLP reserved for each parent;
flexible access to the entire 20-week PLP entitlement until the child's second birthday (rather than the current six weeks of flexible PPL);
gender-neutral claiming, which allows either parent to claim PLP first (currently, the birth parent must claim first);
allowing concurrent use of PLP by parents (for a period of up to ten days);
expanding PLP access to all parents who meet the income and residency requirements (even if the birth parent does not); and
introducing a family income test of $350 000 (in addition to the existing individual income test).
1.24Employees with children born before 1 July 2023 are assessed under the previous rules, which means they are able to access 18 weeks of PLP and up to two weeks of DaPP.
Interaction between the Commonwealth PPL scheme and other leave entitlements
1.25Under the National Employment Standards (NES) in the Fair Work Act 2009 (Fair Work Act), eligible national system employees are entitled to 12months unpaid parental leave, as well as the right to request up to 12 months of additional unpaid leave. Unpaid leave can be taken either as one unbroken period, flexibly, or a combination of both.
1.26The Fair Work Act also includes a 'return to work guarantee' and allows employees to work up to 10 'keeping in touch days' during their unbroken period of unpaid leave. Keeping in touch days are designed to help parents stay connected to their employment and facilitate their return to work.
1.27In addition to unpaid parental leave, employers can provide paid parental leave for employees, with the specific rules, amount of leave, and pay entitlements set out in relevant employment agreements, contracts or policies.
1.28The Commonwealth PPL scheme does not confer an additional leave entitlement and does not affect employees' existing leave entitlements. Rather,itcomplements employee entitlements to both unpaid parental leave and employer-funded paid parental leave.
1.29Accordingly, PLP can be received before, after, or at the same time as employer provided paid or unpaid leave—an arrangement which gives parents the flexibility to use PLP in the way that best suits them.Typically, employees choose to access PLP while on unpaid parental leave.
1.30In addition, employers can 'top up' the PLP so that the payment matches an employee's regular wage. According to the departments, this feature can help to attract and retain staff—particularly where an employer cannot afford to offer paid parental leave on its own. All employers are encouraged to make supplementary top up payments, where possible.
Administration of the Commonwealth PPL scheme
1.31The Commonwealth PPL scheme is managed by Services Australia, with PLP funded by the Australian Government. In most cases, employees receive PLP directly from their employer via their normal pay cycle, using funds provided by Services Australia.
1.32According to the departments, prior to the COVID-19 pandemic:
approximately 70 per cent of PLP recipients received PLP through their employer;
approximately 40 per cent of employers who paid PLP were small businesses (less than 20 employees); and
small businesses accounted for around 15 per cent of all employees who received PLP through their employer.
1.33In 2022–23, 70 per cent of employees received PPL payments via their employer, while around $160 million was spent on PLP for small businesses employees, covering approximately 30 000 recipients.
1.34Currently, employers have both a mandatory role and an opt-in role in relation to the Commonwealth PPL scheme. The recent changes to the Commonwealth PPL scheme did not change the employer role.[37]
Mandatory employer role
1.35The Act requires employers to provide PLP to their employees when the following criteria are met:
the employee lives in Australia;
the employee has worked for the employer for at least 12 months before the expected birth or adoption date;
the employee is expected to remain employed during the period they will receive PLP;
the employee will not receive any PLP days prior to the period they will receive PLP from their employer; and
the employee will receive at least 40 continuous days (that are weekdays) from their employer.
1.36Where an employee meets the above criteria and opts to take their PLP in multiple blocks, their employer is only required to deliver the first block of payments. Any subsequent PLP blocks will be paid directly by Services Australia.
1.37Where an employee does not meet the above criteria, employers are not required to provide PLP. Instead, the payment is provided to eligible claimants directly by Services Australia. For example, Services Australia will pay eligible employees directly where they take a block of PLP that is shorter than 40 continuous weekdays, or where an employee elects to receive PLP for weekends as well as weekdays. Services Australia may also pay employees directly where the block of PLP is in the past.
1.38However, an employer can still choose to provide PLP to an employee who is eligible but does not meet the criteria (see opt-in employer role, below).
Opt-in employer role
1.39Where there is agreement between an employer and employee to do so, an employer can opt-in to provide PLP to an eligible employee who does not meet the criteria set out in the preceding section (a 'non-mandatory employee'). According to the departments, approximately 38 per cent of employers who provided PLP to their employees in 2021–22 opted in to do so.
1.40An employer can opt-in to providing PLP for an individual employee, a specified class of employees, or all their employees. An employer can choose to change their opt in status at any time.
Process for employers
1.41While employers can be required to make PLP payments, they are not involved in either the claim process or determining the eligibility of their employees. Thisprocess is managed by Services Australia, with employees responsible for lodging PLP claims.
1.42If Services Australia determines an employee is eligible for employer-paid PLP, the employer is advised of this via a written Employer Determination notice. The employer then has 14 days to either accept the decision or seek a review of the determination.
1.43To make PLP payments, employers need to undertake a one-time registration process with Services Australia. This involves registration of their business in Provider Digital Access (PRODA), followed by registration for the Services Australia Business Hub, which allows them to link their organisation to PPL services. Once registered, employers can receive PPL payment advices directly through the Business Hub. These advices are available in a range of formats and can integrate automatically with an employer's payroll software. ThroughBusiness Hub, employers can also accept Employer Determinations, seek reviews, update their information and view payment advices.
1.44Employers do not need to provide an employee with a PLP payment until they have received funds from Services Australia (transferred to an employer's nominated account on either on a fortnightly or six-weekly basis). PLP funds do not need to be separately identified in financial statements and PLP is not subject to payroll tax, does not increase workers' compensation premiums, and does not attract a superannuation guarantee liability.
1.45A detailed list of employer obligations related to PLP payments—following a Services Australia determination that PLP should be paid to an employee—is provided at Figure 1.1.
Figure 1.1Employer obligations where Services Australia determines that PLP must be paid to an employee
Source: Services Australia, Paid Parental Leave Scheme Employer Toolkit, www.servicesaustralia.gov.au/sites/default/files/2023-06/fpr081-2305en.pdf (accessed 25 July 2023), p. 7.
Support for employers
1.46Services Australia is responsible for providing employers with information about the Commonwealth PPL scheme, the role of employers within the scheme, and the process for registration.
1.47This information is provided via the Services Australia website, the Paid Parental Leave Scheme Employer Toolkit, user guides for both PRODA and the Business Hub, as well as a dedicated phone service for employers who need help understanding their obligations or assistance with registering for paid parental leave services in the Business Hub. This includes an option for free interpreters and a free translation service. A dedicated phone service is also available for employers who need help registering for PRODA.
1.48Education, assistance and advice for employers in relation to their obligations under the Fair Work Act 2009 is provided by the Fair Work Ombudsman. Thisincludes the Small Business Showcase, the Small Business Helpline, the Pay and Conditions Tool, and the Employer Advisory Service for small businesses (those with fewer than 15 employees).