- The three players: who funds, who delivers, who receives
- When the government scheme applies: the eligibility triggers
- Opting in to pay
- What you must do when you pay
- The separate layer: unpaid parental leave and your own paid leave
- Where the system usually goes wrong
- When a lawyer earns their fee
- One phrase, three different obligations
Paid parental leave is one of the questions every Australian employer eventually hears: is it paid by the business or by Centrelink? The practical answer is that it is usually both, in different senses. The Australian Government funds the payments under its Paid Parental Leave (PPL) scheme, and Services Australia, the agency most people still call Centrelink, runs the scheme. But in many cases your payroll team is the one that actually hands the money over, because Services Australia directs the employer to pay instalments to an eligible employee and then reimburses the business for what it paid.
The confusion is understandable, because "paid parental leave" is used loosely for three different things: the government scheme, an employer-funded benefit in a contract or policy, and the separate right to unpaid parental leave under the Fair Work Act 2009 (Cth). Each has a different funder, different rules, and different consequences. This article maps who does what in the government scheme, when your business becomes the delivery channel, and where the traps sit for small and medium employers.
The three players: who funds, who delivers, who receives
Keeping funding separate from delivery is the key to the whole scheme. Three parties are involved, and their roles do not overlap the way most people assume.
- Services Australia: Funds and administers the scheme under the Paid Parental Leave Act 2010 (Cth) (the Act). It assesses claims, decides who is eligible, and in many cases makes an employer determination that directs the employer to pay instalments to the employee. It also pays the employee directly where no employer determination applies.
- Your business: When an employer determination is made, or when you opt in, your payroll delivers the payments to the employee on your normal pay cycle. The government reimburses you for the amounts you pay. You never fund the government payment itself.
- The employee: Lodges the claim, chooses how to take the days, and receives the money, either from you or from Services Australia.
There is a fourth player at the edges. From 1 July 2025, the Australian Taxation Office pays a superannuation contribution on government-funded Parental Leave Pay for children born or adopted from that date, so the retirement savings side of the scheme does not touch your payroll at all.
When the government scheme applies: the eligibility triggers
The PPL scheme operates through the Paid Parental Leave Act 2010 (Cth). It is a payment to the employee, not a leave entitlement in the workplace-law sense, and it has been running since 1 January 2011. An employee who wants it must lodge a claim with Services Australia, which they can do up to three months before the expected birth or adoption.
Eligibility turns on a few tests, and they are the ones your employees will ask you about:
- Who can claim: The birth mother, their partner, the biological father, adoptive parents, gaining parents in a surrogacy arrangement, and people caring for a child in exceptional circumstances can all claim.
- The work test: The claimant must have performed at least 330 hours of qualifying work in the 13 months before the birth or adoption, roughly a day a week. Section 32 of the Act expresses this as 330 hours of work within a qualifying period of 295 consecutive days in the work test period.
- The income test: Services Australia looks at the claimant's adjusted taxable income for the financial year before the birth or adoption, or before the claim, whichever is earlier. For the 2025-26 financial year the individual limit is $186,487, and where that is exceeded a family income test applies with a combined limit of $386,525. The thresholds are adjusted each year.
The payment itself tracks the national minimum wage. For the 2025-26 financial year Parental Leave Pay is $948.10 per five-day week before tax, and the rate changes on each 1 July as the minimum wage moves.
The number of days has been expanding in stages. Families get 110 days, or 22 weeks, for children born or adopted from 1 July 2024, rising to 120 days (24 weeks) from 1 July 2025 and 130 days (26 weeks) from 1 July 2026. A share of the days is reserved for the other parent, growing from 10 days to 20 days over the same period. A multiple birth still attracts only one payment, shared across the family.
Who actually hands over the money
This is the part that surprises most employers. The common assumption is that Centrelink pays eligible employees directly and the business is never involved. In practice, for a large share of eligible employees, the employer is the payment channel.
When your business pays
Under section 101 of the Paid Parental Leave Act 2010 (Cth), Services Australia must make an employer determination directing the employer to pay instalments where the employee:
- has been, or will have been, employed by you for at least 12 months before the expected date of birth;
- is likely to be an Australian-based employee of yours for the payment period;
- is taking their first block of Parental Leave Pay as a continuous block of at least 40 consecutive weekdays, which is eight weeks; and
- works for an employer that has an ABN.
Services Australia states the same test in plain language: your business pays the employee's Parental Leave Pay if they have worked for you for at least a year, you are Australian based, they have requested a continuous block of payment, and they will stay employed by you until the end of the block.
When an employer determination is in force, Services Australia gives your business the funds to pay out, and you pay the employee in line with your regular payment cycle. The money in your payroll is the government's money passing through your accounts, not a new cost to your business. The scheme applies to all employers, large and small, and no small business exemption exists.
When Services Australia pays directly
Services Australia pays the employee directly where no employer determination applies: the employee is new and has not reached 12 months' service, they are taking Parental Leave Pay as part-time or reduced days rather than a continuous full-week block, the block is shorter than eight weeks, they are self-employed, or they are receiving an income support payment. It also takes over payment of any later blocks after the first, and it will step in if the employee changes their nominated days after your payroll has started paying.
Direct payments are made fortnightly into the employee's bank account, and Services Australia withholds tax at 15 per cent unless the employee asks for a different rate.
Opting in to pay
If your employee does not meet the requirements for an employer determination, you are not obliged to pay. But you can choose to. Section 109 of the Paid Parental Leave Act 2010 (Cth) allows an employer to elect to pay instalments, and both you and the employee must agree.
The opt-in covers three situations in particular: long-term employees, employees who have been with you for less than 12 months, and employees who will get less than eight weeks of Parental Leave Pay. Once you elect, the 12-month service and eight-week block requirements no longer apply to that employee.
There is a timing trap here. The employee can lodge their claim up to three months in advance, and your opt-in must be in place before the claim is submitted. If the claim goes in first, you cannot pay that employee's Parental Leave Pay. Opting in is done online through Business Hub, which you access with a PRODA account, and registering for Business Hub can itself constitute opting in, so it is worth checking your organisation profile to see what you have already agreed to.
What you must do when you pay
If your payroll delivers Parental Leave Pay, treat it like any other payroll item with a few specific obligations attached:
- Withhold PAYG tax: Apply the employee's usual withholding rate. Services Australia's withholding of 15 per cent only applies when it pays directly.
- Deduct child support: Make the deduction from the payment if you are required to do so.
- Keep records: Document the instalments paid and the reimbursement you receive, so the government funding and any of your own payments never blur together.
- Do not pay superannuation: No superannuation obligation attaches to the government-funded amount. For children born or adopted from 1 July 2025, the ATO pays a Paid Parental Leave Superannuation Contribution at the superannuation guarantee rate into the employee's fund after the end of the relevant financial year, starting from July 2026. You can make voluntary contributions if you choose, but they are separate.
One legal point matters here: section 99A of the Paid Parental Leave Act 2010 (Cth) provides that an employer's obligation to pay Parental Leave Pay is in addition to any other obligation the employer has to the employee, however that obligation arises. Paying the government scheme never satisfies a separate entitlement your employee has under an award, an enterprise agreement, or their contract.
The separate layer: unpaid parental leave and your own paid leave
The government payment is only one of three layers, and the other two are the ones that create real liability for employers.
Under the National Employment Standards in the Fair Work Act 2009 (Cth), eligible employees have a right to 12 months of unpaid parental leave in connection with the birth or adoption of a child (section 70). The general rule is that the employee must have completed at least 12 months of continuous service, with a specific rule for regular casual employees who have been employed on a regular and systematic basis for at least 12 months (section 67). The employee can ask to extend the leave by up to another 12 months, capped at 24 months after the birth or placement (section 76), and can take up to 100 days of it flexibly during that 24-month window (section 72A). This entitlement is a workplace right with job protection, notice requirements, and return-to-work obligations attached, whether or not the employee receives any government payment.
Then there is employer-funded paid parental leave. If you offer paid leave under an employment contract, a workplace policy, or an award or enterprise agreement, that is your money, paid on top of or instead of what the government provides. Many businesses structure this as a top-up that makes up the difference between the government rate and the employee's usual wage. That can be a strong retention tool, but it is also the most common source of disputes, because an informal promise in an email can create an enforceable entitlement nobody intended. A top-up should be documented with its eligibility criteria, its calculation, its duration, and whether it is discretionary or contractual.
Where the system usually goes wrong
The failures in this area are rarely about the government scheme itself. They cluster around the boundaries between the three layers.
The most common mistake is assuming that "Centrelink pays" means your business has no role. For an employee with 12 months' service taking a continuous block, an employer determination will usually be made and the payment will run through your payroll. Missing the determination, or treating the reimbursement as income rather than a pass-through, creates record-keeping and accounting problems.
Conversely, some employers pay top-ups informally and discover that what they thought was a discretionary gesture has become a contractual entitlement that applies to the next employee too. Others fall into classification trouble with casuals: unpaid parental leave eligibility depends on regular and systematic engagement over 12 months, and the government scheme's work test applies to the employee regardless of your classification of them, so misclassification creates exposure on both layers at once.
Restructures and performance management around a leave period are the highest-risk situations. An employee on parental leave, or preparing to take it, is protected from adverse action linked to a workplace right, and changes to hours, role, or location on return need to be handled with the leave entitlements and discrimination risks front of mind. A redundancy process that touches an employee in this position is where legal advice pays for itself quickly.
When a lawyer earns their fee
Most parental leave administration is straightforward once the funding and delivery distinction is clear, but several situations justify advice before you act:
- drafting or reviewing a parental leave policy or top-up arrangement, so the employer-funded layer is deliberate and documented rather than accidental;
- checking how the government payment interacts with award or enterprise agreement entitlements, including any entitlement to paid leave in addition to the government scheme;
- restructuring, reducing hours, or managing performance for an employee on or returning from parental leave, where adverse action and discrimination exposure is real;
- resolving a dispute about what was promised, where the informal promise versus documented entitlement question decides the outcome.
A lawyer working through these questions will usually start by mapping the three layers for your particular employee: what the government scheme funds, what your contract or policy commits you to, and what the National Employment Standards require regardless. That map is also the document that protects you if a dispute later arises.
One phrase, three different obligations
The phrase "paid parental leave" is the source of most of the trouble, because it compresses three obligations with three different funders into a single label. The government funds the PPL scheme, and Services Australia decides who gets it and who pays it out. Your business may be the delivery channel for money that is not yours, with tax and record-keeping duties but no funding obligation and no superannuation obligation. Separately, the Fair Work Act 2009 gives the employee an unpaid leave right with job protection, and your own contract or policy may add a third layer that is genuinely your money.
Keep the layers separate in your head and on paper: treat government instalments as payroll administration, document any top-up you offer as a deliberate benefit, and never assume that because one layer is funded, the others have disappeared. If an employee's situation involves a restructure, a casual arrangement, or a promised benefit, the cost of a conversation with an employment lawyer before you act is small next to the cost of untangling a dispute afterwards.