Summary

The Parental Leave and Employment Protection Act 1987 was amended by the Holidays Act 2003, which came into force on 1 April 2004.

• Parental leave is unpaid leave of up to 52 weeks.
• Government provides paid parental leave entitlement for up to 14 weeks.
• Entitlement varies according to period of employment, average hours worked per week and conditions of employment.

PayGlobal records when an employee starts and ends parental leave, and includes parental leave in annual leave entitlement calculations. However, the government pays the parental leave entitlement directly to the employee so it is not recorded in PayGlobal.

Eligibility

An employee is eligible for parental leave if they fulfill the following criteria at the time of birth or adoption:

• Worked for the employer for at least 12 months.
• Worked for an average of 10 hours per week for at least one hour per day, or 40 hours per month.
• Did not take parental leave in the preceding 12 months.

If the employee has an irregular work pattern, then you must establish their average hours per month.

Responsibilities

Employees have to:

• Decide if they want to take parental leave under the Holidays Act 2003 or under their employment agreement. One partner can choose the Act and the other the agreement. However, if one partner takes parental leave under the Act, then the total leave taken cannot be more than 52 weeks.
• Give the employer three months' written notice of when they want to take parental leave. If the employee does not give three months' notice, then their employer does not have to agree to the leave.
• Begin their parental leave at the time agreed with their employer.

Employers have to:

• If the employer requires any additional information, then they must ask for it within seven days of receiving your initial application for parental leave.
• Reply to the employee's application letter within 21 days to tell them whether they are eligible for parental leave or not, and if the employee's job can be kept open. Employers must also provide the employee with information about the paid parental leave entitlements available under the Act.
• Write to the employee within 21 days of their starting parental leave, giving details of their leave. Employers must also fill in a paid parental leave application form, including information on the employee's eligibility for leave and income level.

Effect on Annual Leave

Annual Leave Accruals

Employees on parental leave are still entitled to annual leave (a minimum of 4 weeks per annual leave year). If you follow the instructions in Setting up Parental Leave, employees will continue to accrue annual leave units (hours/days) during their absence from work, but their annual leave payment rates will change.

Annual Leave Payments

Normally, annual leave is subject to the Holidays Act 2003, Part 2, Sections 21 - 28 so the rate is the greater of the employee's ordinary weekly pay and average weekly earnings for the previous 12 months.

However, if an employee takes parental leave, then regardless of what portion of an annual leave year they were on parental leave for, the entire annual leave year's entitlement is subject to the Parental Leave Act 1987, Part 5, Section 42 so the rate is the average weekly earnings for the previous 12 months.

The effect of parental leave on annual leave payments is shown in the following examples.

Example 1

In this example, the employee is paid $4,000 per month and she does not take any annual leave before going on parental leave.

In the employee’s first year of employment (AL Year 1), she does not take any leave so she is entitled to 4 weeks' leave at a rate of $923.08 per week: ($4,000 * 12 months) / 52.

In her second year of employment (AL Year 2), the employee goes on parental leave in August and she does not take any annual leave before starting parental leave. All of AL Year 2 is now subject to "average weekly earnings", not just the portion that she was on parental leave.

In the employee’s third year of employment (AL Year 3), she returns from parental leave on 06/08/2014.

She now has 8 weeks' outstanding annual leave (4 weeks from AL Year 1 and 4 weeks from AL Year 2) and approximately 2.3333 weeks' leave (7/12 of 4 weeks) accrued in AL Year 3. However, the total liability of her outstanding leave is only $3,692.32. Her 4 weeks from AL Year 1 are worth $3,692.32 ($923.08 per week * 4 weeks). However, her 4 weeks from AL Year 2 are worth $0 because in the 52 weeks before her return she had zero earnings. Her 2.3333 weeks' accrued leave is worth $0 for the same reason.

If the employee takes 4 weeks' leave or less in the last week of December 2014, it will be outstanding annual leave from AL Year 1 paid at $923.08 per week.

If the employee takes more than 4 weeks' leave in the last week of December 2014, the first 4 weeks will be paid at $923.08 per week, but the remaining leave will be calculated based on her earnings in the 52 weeks before December 2014. The employee only started earning again in August 2014 so she will have only 4 months of earnings to use in the average 52-week calculation. Therefore, the AL Year 2 and 3 leave rate will be only $307.69 per week: (4 months * $4000) / 52.

The leave rate for AL Year 2 and 3 units will increase with each pay period, but it will not return to $923.08 per week until the employee has been back at work for 52 weeks (07/08/2015).

Example 2

In this example, the employee is paid $4,000 per month and she takes all her available annual leave before going on parental leave.

Before the employee goes on parental leave in August 2013 she uses all her available annual leave. She has 4 weeks' outstanding leave from AL Year 1 and approximately 2.3333 weeks leave (7/12 of 4 weeks) accrued in AL Year 2 so she can take 6.3333 weeks' leave at $923.08 per week: ($4,000 * 12 months) / 52.

When the employee returns from parental leave on 06/08/2014, she has approximately 4 weeks' leave available, but it is worth $0 because in the 52 weeks before her return she had zero earnings.

Between 06/08/2014 and 01/01/2015, her annual leave rate will gradually increase from $0 to approximately $384.62 per week: ($4,000 * 5 months) / 52. However, her rate for the remaining AL Year 2 units and all the AL Year 3 units will not return to $923.08 per week until she has been back at work for 52 weeks (07/08/2015).

Example 3

In this example, the employee does not take any annual leave before going on parental leave and she resigns before returning from parental leave.

The employee is expected to finish parental leave on 06/08/2014, but on 01/07/2014 you receive notice that she does not intend to return to work. In accordance with the Parental Leave Act 1987, Part 5, Section 46 (b), the employee’s termination date is effective from the day she started parental leave (07/08/2013).

You must pay the employee for the annual leave they were owed at their termination date in accordance with the Holidays Act 2003, Part 2, Section 24 and 25. This leave includes any remaining outstanding units from AL Year 1 and any units she accrued in AL Year 2 from 01/01/2013 to 07/08/2013.

However, you do not need to pay for any units she accrued from 08/08/2013 to 01/07/2014 (the date you received notice). By providing notice before she returned from parental leave, the employee has forfeited her right to these annual leave units.

Setting up Parental Leave

Employers need to accurately calculate a valid annual leave pay rate for employees who:

• Are on parental leave
• Were on parental leave in the last 52 weeks.

The annual leave pay rate for such employees is equivalent to their average weekly earnings for the previous 12 months.

Annual Leave Pay Rate for Parental Leave

You need to set up an annual leave pay rate for parental leave employees:

• Create a rate with Rate calculation = ”Q. Average Hourly Earnings (H2003calc)”
• Use the rate to create a rate rule for annual leave payment calculations that include a period of parental leave.
• Attach the rate rule to annual leave tables.

Parental Leave Counter

PayGlobal needs to 'count' the number of days an employee is on parental leave so it can populate UDA breakdown entries with the correct values for each pay. PayGlobal can then use the UDA breakdown entries to accurately calculate the average weekly earnings pay rate for annual leave payments.

• Create a 'counter' non-paying allowance for parental leave.
• Attach the 'counter' allowance to the Average Day and Average Hours allowance groups.
• Create the Parental Leave History payroll rule that will create a counter allowance transaction if the employee is on parental leave.
• Attach the Parental Leave History payroll rule to the relevant award, period or internal company, and set it to run on initialisation of pay processing.
• Create parental leave warning payroll rules that will add a warning in the process pay audit log if an employee starts or ends parental leave in that pay period.
• Attach the parental leave warning payroll rules to the relevant award, period or internal company, and set them to run on finalisation of pay processing.

  Further Reading: For more details, see the Leave manual.