As financial planners, much of our time is spent happily helping people plan for retirement. But one of the things we really love doing is helping people plan for other important and special times of their lives. Becoming a parent is one such time.
This month, there was a significant change to the way in which parents can take parental leave paid for by the Commonwealth Government. It applies to all people who became parents after July 1. Let’s go through it in detail.
Before we do, remember that your specific employer might have a particular parental leave program for you as their employee. As these arrangements vary from employer to employer, we will not discuss them here. Instead, we will focus on the Commonwealth Government’s new support program for new parents.
Centrelink provide a new payment what they call Parental Leave Pay to parents in the following situation:
The current payment amount is $176.55. This is before tax (and the payment is taxable). It can be claimed for up to 100 days. Importantly, a parental couple can share the leave between them. In fact, to get the full 100 days, there needs to be two parents making a claim. If there is only one parent, he or she can only claim 90 days. This is also the ‘per-person’ maximum when there is a couple. So, at least 10 days need to be claimed by the ‘second’ parent for the full 100 days to be paid.
Parental leave pay is subject to an income test. The income test basically comes in two parts. For an individual parent, Centrelink look at the income of the claimant for the full financial year prior to the birth (or adoption). For 2022/2023, the upper limit was $168,865. Basically, to get parental leave pay as an individual, you need to have had an income equal to or less than $168,865 in the previous financial year.
However, if your individual income is higher than that, and you are in a parental partnership, then Centrelink will look at your combined incomes. If that combined income is no more than $350,000, then you can claim the payment as well. We do not really understand why the combined income threshold is more than twice the individual income threshold, but there you go.
Centrelink offer the following worked example of a couple and the income test:
Reema has a baby on 2 July 2023 and lodges a claim for Parental Leave Pay. Her income in the 2022-23 financial year was $200,000. This is over the individual income limit of $168,865. Reema’s partner Mohammed’s income was $90,000 in the 2022-23 financial year. Their combined income is $290,000 in the 2022-23 financial year. This is below the family income limit of $350,000. Reema meets the family income test for Parental Leave Pay.
The parental leave payment is for people who have to take time out of paid employment to look after a new child. It is therefore subject to a work test. The work test is a bit fiddly, but not that hard to get your head around.
The work test requires that a claimant has met both of these conditions:
In addition, and in a way that makes sense, you cannot have had more than a 12 week gap (basically 3 months) between each workday over the qualifying period.
If parental leave pay is being claimed by a couple, then both members need to meet the work test. If only one parent is claiming it, then only that parent needs to meet the test. And if only one parent would meet the work test, then only that parent should claim it.
That all said, there can also be some exceptions to the work test. Many of these relate to the experience of pregnancy. For example, if a mother has a pregnancy-related illness that means she has to leave work, this can be an exception. Or, if a mother has a job that cannot be performed at all stages of a pregnancy (for example, she is a professional athlete), there is an exception. As with many Centrelink tests, there is also an understandable exception in the case of domestic violence.
Finally, the parental leave payment requires that you are not working on the day of payment – that is, you must be on leave. Centrelink define working as spending more than one hour for the day working. That said, there are allowable reasons for you to work. These include things like people who are summoned to appear in Court for a work-related purpose, or health workers who are called into work in the event of a state or national emergency.
Note that you can spread the paid parental leave days throughout a period. If, for example, you normally work full time and you decide to reduce to three days a week after the baby arrives, you can claim the paid parental leave for the two days a week you do not work (assuming all of the other conditions are met).
The above Paid Parental Leave payment is a new program introduced on 1 July 2023. There was a pre-existing program, which for ease of presentation we have not gone through here. But if you have a baby that was born before 1 July (or a child adopted before that date), please get in touch. The main feature of the new system is that the payment is so easily and readily ‘splittable’ between two parents. The previous payment was much more targeted at the birth parent.
For most people, taking Centrelink’s paid parental leave will be a straightforward thing that will assist you and your family to manage this busy and tiring time as happily as possible. So, if parenthood is on your horizon, please do not hesitate to get in touch with us and let us show you how you can access this important support.
