Removing employer responsibility for Paid Parental Leave

New Abbott Government legislation will remove the requirement for employers to make payments to employees under the national Paid Parental Leave (PPL) scheme from 1 March 2014. Instead, employees would be paid directly by the Department of Human Services, unless the employer chooses to make the payments.

The Government's reason for making the change is to 'ease administrative burdens on business'. 

Currently, in most cases, the Commonwealth Government funds employers to provide instalments of PPL to their eligible long-term employees for up to 18 weeks at the National Minimum Wage (currently $606.50 per week).

The employer role in making these payments was suggested by the Productivity Commission in its report recommending the current scheme. The Commission argued that:
 ... the more that parental leave arrangements mimic those that exist as part of routine employment contracts, the more they will be seen by employers and employees as standard employment arrangements.
It suggested that this would benefit employers in two main ways. First, it would 'promote employment continuity and workforce retention'. Second, it would signal that 'a genuine capacity to take a reasonable period of leave from employment to look after children is just a normal part of working life'.

During the Commission's parental leave inquiry, some employer representatives and individual companies gave qualified support to playing the 'paymaster' role for the scheme. Others, however, were opposed on the grounds of the perceived administrative burden.

The Commission, however, was sceptical of these concerns, suggesting that:
  ... it is arguable whether there would be any material addition to administrative costs, not only for large employers with access to sophisticated payroll and human resource management systems, but also for smaller firms because (as acknowledged by some participants) the probability of an employee actually being on parental leave at any point in time would be quite low.
Nevertheless, the Government says that feedback to a legislated review of the PPL scheme currently underway  suggests that employer groups 'generally [do] not support the employer role' because it  'places an unnecessary administrative burden on business, and any benefits to employers in terms of employee retention were not commensurate with the administrative burden imposed' (see Regulatory Impact Statement, p. 2).

The Government estimates that total annual (national) savings to employers from removing the paymaster requirement will be $48 million, though it isn't clear how it arrived at this figure.

While there is clearly some opposition to the paymaster role among employers, there is evidence from a Government evaluation of the early impacts of the scheme (the 2013 PPL Phase 2 Report) that employer experiences in implementing PPL have generally been positive.

According to a survey of 501 employers undertaken as part of the evaluation:
  • 54% disagreed with the statement that 'organising payments for PPL has been time-consuming'
  • only 29% of employers stated additional costs were involved in implementing the scheme
  • of those reporting additional costs, 94% stated that this arose from extra workload they took on themselves, rather than from purchasing a new payroll system or hiring extra administrative staff
  • in terms of staff hours required to process PPL:
    • 23% of employers reported one to two hours were needed
    • 22% said it required three to five hours
    • 30% reported it took 15 hours or more
  • costs to organisations implementing PPL were minimal, with estimates ranging between:
    • $1 and $250 for 45% of employers
    • between $250 and $1,000 for 21% of employers
    • over $1,000 by 20% of employers.
  • 74% agreed that PPL had been easy to implement.
In terms of possible retention effects associated with employers providing PPL, interviews conducted as part of the evaluation were inconclusive because 'most employers had little experience with return to work as the majority of their employees were still on leave'.

This suggests it may be premature to suggest that the benefits of the employer role in providing PPL are outweighed by the costs (especially when the available evidence suggests that employers have generally had positive experiences with the scheme). It could also be argued that the Government's provision of up to $11,000 to employers towards the costs of parental leave pay for their employees should be considered in evaluating the costs and benefits of the scheme.

Finally, it is worth noting that an argument often used in support of the more generous schemes proposed by the Coalition and the Greens is that PPL should be seen as a workplace entitlement, rather than a welfare payment. On this view, removing the paymaster requirement from employers takes away one of the few aspects of the scheme specifically intended to promote PPL as a standard employment arrangement.



Flagpost is a blog on current issues of interest to members of the Australian Parliament

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