Parental leave: uncharted territory

The government’s paid parental leave scheme, which starts next month, is a groundbreaking change for Australian business and workers. For the first time in Australian history, parental leave will be paid by law and funded by the Government.

But lawyers warn that for employers, it will add a layer of administrative complexity and cost. And as with all new laws coming into place, there will be teething problems and confusion.

The scheme is for eligible working parents earning $150,000 who have given birth or adopted a child after January 1, 2011. Completely Government funded, it pays people at the rate of the minimum weekly wage of $569.90 a week for 18 weeks. Under the National Employment Standard, people can also apply to have 52 weeks off for parental leave, and then re-apply for another year. That is unpaid after the first 18 weeks.

Under the scheme, an employee planning to take parental leave makes an application to Centrelink which then determines the eligibility of the employee and then notifies the employer. The Family Assistance Office pays the money to the employer who passes that on to the employee on leave, in effect turning the company into the Government’s payroll clerk.

Lawyers say this could create confusion for employers who already have a parental leave scheme in place.

The Government’s legislation prohibits companies from changing their existing schemes if they are written into contracts or enterprise agreements. But the seven different lawyers SmartCompany spoke to say it’s not entirely clear. There might be room to move if these schemes are part of a policy and not contractual. Nevertheless, the wording of that policy needs to be looked at carefully. You can either do it, or you can’t.

Ross Jackson, a partner at law firm Maddocks specialising in employment, safety and people, says this has become a major issue for businesses.

“This calls up some fine nuances as to whether a policy becomes contractually binding,” Jackson says.

“Clearly if an organisation is party to an enterprise agreement which provides for paid parental leave, they will be under an obligation under Section 99a of the Act to maintain that payment irrespective of what the parent might get under the scheme. The Act uses the word “obligation” to pay a person parental leave.

“But where this gets tricky is when it becomes a question of whether that policy is an obligation or is merely discretionary or aspirational. If you have a policy which provides an iron clad guarantee on paid parental leave, that will arguably constitute a contractual term. Other organisations might say we have the policy but read my lips and look at the flashing neon lights: they are not the terms of your contract of employment and we can and will change them at our discretion.”

“Every employer will have to look at two things: Are our policies binding or are they discretionary? And if they are discretionary, do we want to be seen to be pulling them back and saying you are getting money from the government, you don’t need to get money from us.”

“Obviously, the message that might send out might put you in a spot of bother in terms of recruiting and retaining the best, particularly women.”

Seamus Burke, a partner at Middletons says the only way companies can change a contract or enterprise agreement is with the consent of the employee, and this is extremely unlikely.

“The only way you can do that is by negotiation and agreement with employees and you can imagine that agreement is very unlikely to be achieved in circumstances where you are going to reduce the take home amount the employee is otherwise entitled to,” Burke says.

Under the National Employment Standards, a select group of employees can apply for flexible work arrangements, something that would be critical for parents returning to work after time off looking after the baby. However, this is restricted to employees with a child under school age or who have a child with a disability. If their youngest child goes to school, they are not eligible. As with the parental leave scheme, this is new territory for Australian business.
“The business can reject an application if it has reasonable business grounds for doing so,” Burke says.

“But there is no clear definition by case law yet as to what reasonable business grounds are.”

Lisa Croxford, a special counsel for equal opportunity and diversity law at Freehills, says there is now an obligation on employers to consult with an employee if there are going to be any changes to their role upon their return.

This means, for example, that if an employee is away on parental leave and the company plans to change their role, perhaps changing their responsibilities or even making the position redundant, the employer would be required to consult with that staff member first.

Croxford says that among her clients, many companies are building on the parental leave scheme. They are using parental leave to turn themselves into an employer of choice at a time when Australia’s skills shortages are set to worsen as the world recovers from the global financial crisis. With talent now harder to find and retain, more are turning to family friendly policies to attract staff.

Croxford says some employers plan to pay parental leave out of their own pockets for employees earning over $150,000. Other companies, including Freehills, have extended three weeks of payment to non-primary carers, the supporting partner. Some are even paying their employee the equivalent of a baby bonus on the birth of the child.

“You will see that the leaders here tend to be companies and industries where there is a high number of women or where it’s high on the diversity agenda,” Croxford says. “Banks and law firms are pretty good on this.”

This means that companies thinking of not adhering to their policies and reducing the parental leave benefits are doing so at their own peril. They risk losing quality staff.

Still, there is a cost to the scheme. Opposition small business spokesman Bruce Billson has introduced a private member’s bill into Parliament to ensure the government pays the benefit directly to parents. This would reduce the compliance burden on companies. The legislation has been delayed until next year.

Tim Capelin, a principal at Australian Business Lawyers, says the government had not even considered the extra cost on business.

“It’s an understandable concern of business,” Capelin says. “The government seems to assume that the administrative costs are zero and I guess the Coalition has recognised the realities of the situation and it’s saying it’s not that straight forward and that as a government benefit, it should be dealt with like any welfare payment.”

The problem, he says, is that businesses will not be compensated for the cost of administration. All businesses will need to have systems in place to make sure people are getting the payments. Someone in the organisation will have to take care of it. Someone has to pay for it. That might be the cost of doing business in a skills constrained market but nobody should pretend it is not a cost.

“Some companies may be able to absorb those costs within their existing cost base,” he says. “Nevertheless, an individual in the organization will have to tick the boxes and check various things to make sure the payment is made.”

Stephanie Nicol, a senior associate at law firm Gadens, says it is impossible to know exactly what the costs will be. “Because we have not yet commenced, we are not going to know at this point in time what the costs and burdens are for the administration of the scheme,” Nicol says.

“For some businesses, it might not translate into additional costs at all, for others it might involve extra costs.”

This is why lawyers are predicting some teething problems. “As with all new laws, there will be a period where people have to get their heads around it,” Capelin says. “It’s one of a myriad of areas that a generalist manager has to understand which is not an inconsiderable task.”

And as all the lawyers, it will be particularly true for SMEs and start-ups that do not have extensive human resources back up. For most Australian businesses, paid parental leave is uncharted territory.