What is Parental Leave Pay?
The Parental Leave Pay is a government payment for up to 20 weeks (100 days) while you care for a newborn or adopted child. The amount of income you get is equal to the minimum wage which, at the time of writing this (November 2023), is $882.75 per week. The amount gets updated annually so check the Services Australia website for the latest figures.
There are eligibility criteria you need to meet in order to access the Parental Leave Pay, which we will dive into shortly, but before we do, it’s important you distinguish the difference between Parental Leave Pay and Maternity Leave.
Parental Leave Pay vs Maternity Leave
This is where a lot of people get confused, the Parental Leave Pay is not Maternity Leave. Maternity leave, also referred to as paternity leave, typically refers to the time you get off work after giving birth or adopting a child.
Eligible employees in Australia are entitled, under the Fair Work Commission, to up to 12 months of unpaid leave from work subject to certain criteria. This means your employer needs to keep your job available to you for 12 months if you want to return back to work in the same capacity. To learn more about this, refer to the Fair Work Ombudsman website.
Typically, maternity leave is unpaid leave however some employers choose to give their employees paid maternity leave or are required to under particular industrial agreements. This will be outlined in your employment contract and means your employer will continue paying you for a set period of time while you are off work to start a family.
Unfortunately, most small businesses don’t have the capacity to fund paid maternity leave. Typically, it is large corporates and government workplaces that provide paid maternity leave. But of course, some smaller workplaces do as well.
Just to recap, maternity leave is up to 12 months off work. This may be paid or unpaid depending on your employment contract. Parental Leave Pay on the other hand is a payment funded by the government, not your employer. And yes, you can claim both the employer provided paid maternity leave and the Parental Leave Pay.
Eligibility for Parental Leave Pay
There are eligibility criteria you need to meet to qualify for the Parental Leave Pay. This includes the following:
- Be caring for a newborn or adopted child;
- Have met the income test (more on this later);
- Have met the work test. That is, you must have worked a minimum of 330 hours (1 day per week) in 10 of the 13 months before the birth or adoption of your child. This applies to both employees and self-employed people alike;
- Be off work. That is, you’re taking time off work to care for your child; and
- Be living in Australia with a Citizenship or a permanent visa. There are also some specific visa categories that may qualify.
The person claiming doesn’t have to be the birth mother. It can be the partner of the birth mother. You can also choose to split the Parental Leave Pay days with your partner and you have the flexibility to split your payments into single days or blocks.
Income Test for Parental Leave Pay
There is an individual income test and a family income test. If you don’t meet the individual income test, you can use the family income test.
Under the individual income test, your income from the previous financial year needs to be less than the specified amount. This changes every year so you need to check the year that is relevant to you. For the 2022-23 financial year the limit was $168,865. It is the person claiming the Parental Leave Pay whose income is assessed under the individual income test.
Failing the individual income test, you can look to the family income test. As a couple, your combined income can be up to $350,000. This is especially beneficial if the key income earner in the family is the one that is claiming Parental Leave Pay.
Under both tests, “income” refers to adjusted taxable income. This is your taxable income with certain add backs such as net investment losses and reportable superannuation contributions. It basically tries to stop people from implementing strategies to reduce their taxable income to qualify.
How to Claim
The Parental Leave Pay is paid through your employer. Essentially, the government pays your employer, they then pass the money onto you in your usual pay cycle. If you are self-employed, it gets paid directly to you.
There are a couple of things you need to do to make a claim:
- Notify your employer at least 10 weeks prior to the arrival of your child that you intend to claim the Parental Leave Pay; and
- Lodge your claim with Centrelink. If you have Centrelink online linked to your MyGov account, you can do it digitally online. If not, you will need to contact Centrelink.
Just be aware, you need to lodge your claim within 52 weeks of the child’s birth or adoption, and you have up to 2 years to use all the available payments. If you’re the organised type, you may be able to claim up to 3 months in advance, but payments won’t start until after the birth or adoption.
Is the Payment Taxable?
Yes, the Paid Parental Leave is a taxable payment. Where it is paid through your employer, your employer will withhold the Pay As You Go tax (PAYG) at the usual rate. Where the payment is made directly to you, the ATO will automatically withhold 15% tax unless you ask for a different rate.
Is there anything for those not eligible for the Parental Leave Pay?
Generally, if you are not eligible for the Parental Leave Pay because you exceed the income limits, then you are out of luck. There’s no payment available. If you aren’t eligible for other reasons, such as you weren’t working prior to child’s birth or adoption, then you can investigate the Newborn Upfront Payment and the Newborn Supplement which is linked to your Family Tax Benefit.
Wrapping things up.
There you have it, a rundown of the Parental Leave Pay. If you want to find out more, check out servicesaustralia.gov.au. Policies and figures are constantly changing so you should visit the website to get the latest information. Hopefully now that you have some background understanding it will be a lot easier to sift through the information.
If you need help with your finances, we offer both Tailored Advice for comprehensive financial planning and Ask an Adviser for one-off, targeted questions.
