Paid Parental Leave

We receive a lot of queries about Paid Parental Leave. People generally ask what they have to do and what impact it will have on their business. The other big question is how to account for it.

We’ll cover these topics in this article.

Paid Parental Leave - Background and References
Background
Introduced 1 January 2011, the paid Parental Leave scheme provides government-funded payments available to families. Under the scheme:
  • the child’s primary carer may receive up to 18 weeks of Parental Leave Pay
  • from 1 January 2013, fathers or partners (including adopting parents and same-sex couples) may receive up to two weeks of Dad and Partner Pay.
Both payments are taxable and paid at the rate of the National Minimum Wage.

From an employer’s perspective, whilst you have to pass on the parental leave payment, you’re doing this as an agent, so it should not be included in your income or expenses. It will be included in your payroll run but the impact of it should not appear in your profit and loss.

We explain how to do this, below.

References
Document description Link
The Paid Parental Leave Employer toolkit has been produced by Centrelink and provides a comprehensive overview of the scheme. Centrelink – Paid Parental Leave Employer Toolkit
The Workers Compensation wages defintion manual can help provide more detailed information if you need it, but also confirms that Paid Parental Leave is not defined as wages and salaries for the purposes of Workers Compensation. Workers Compensation, wages definition manual – 5902
Paid Parental Leave - What to do...
Set up
To process Paid Parental Leave correctly, you need to set up the folowing in your accounting system:
  • Paid Parental Leave Liability account in your balance sheet.
  • Payroll payment item which:
    • Is applied / charged against the Paid Parental Leave Liability Account
    • Calculates the appropriate amount of PAYG deduction
    • Has no Annual Leave Accrual
    • Has no Long Service Leave Accrual
    • Has no Superannuation
Process
When you… Debit Account Credit Account
Receive Funds Bank PPL Liability Account
Do a pyroll run PPL Liability Account Bank
Notice that this results in the paid parental leave not impacting income or expenses.
Paid Parental Leave - Other Liabilites
Payroll Tax and Workers Compensation Liability
  • The following link clarifies the position for payroll tax
  • The following link clarifies that the definition of remuneration for the purposes of calculating Workers Compensation Liability does not include the 18 week parental leave payment, but any other parental leave payment is.
Reconcilations
A couple of important things to note:

  • As the payment will be included in your payroll, Annual Payment Summaries will be produced.
  • The salary and wages expense will not agree with your payroll as a result.
  • Your BAS will also be out as the payment and the PAYG withheld will be included at labels W1 and W2 but won’t agree to your Profut and Loss.

Next time you wonder what you can do to make a difference in your business, take action. Be thoughtful, be deliberate, be successful. Contact us to find out how.

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