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Paid Parental Leave is a government scheme for eligible working parents. The government pays money to the employer to pass on to the employee.

For the current rate of paid parental leave and its tax implications, seek advice from the ATO or the Family Assistance Office.

The setup described below is one way of tracking paid parental leave. Depending on your parental leave reporting obligations, you may want to track your parental leave differently. Your accounting advisor or the ATO will be able to provide clarification on the appropriate solution for your circumstances.

 

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title1. Set up the required accounts

Set up the required accounts

The steps below describe how to create three new accounts to track your parental Leaveleave:

  • a liability account (this is for the parental leave payments when you receive them from the government)
  • an income account (this is to reflect the government's parental leave payments as income in your business reports - see task 8 for more info)
  • an expense account (this is to track the parental leave payments you make to your employees)

Create a liability account

  1. Go to the Accounts command centre and click Accounts List .
  2. Click the Liability tab.
  3. Click New. The Account Information window appears.
  4. Enter an Account Number and Account Name which suits your account list.
    Here's our example:
    Example liability account setup
  5. Click OK.

Create an income account

  1. Go to the Accounts command centre and click Accounts List .
  2. Click the Other Income tab.
  3. Click New. The Account Information window appears.
  4. Enter an Account Number and Account Name which suits your account list.
    Here's our example:
    Example income account setup
  5. Click OK.

Create an expense account

  1. Go to the Accounts command centre and click Accounts List .
  2. Click the Expense tab.
  3. Click New. The Account Information window appears.
  4. Enter an Account Number and Account Name which suits your account list.
    Here's our example:
    Example expense account setup
  5. Click OK.
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title2. Create a new wage category

Create a new wage category

  1. Go to the Payroll command centre and click Payroll Categories .
  2. On the Wages tab, click New. The Wages Information window appears.
  3. Change the Wages Name field to Paid Parental Leave .
  4. For the Type of Wages , select the Salary option.
  5. If you report payroll information to the ATO through Single Touch Payroll, select the applicable ATO Reporting Category. Typically this will be the same ATO Reporting Category you've selected for your Base Hourly or Base Salary wage categories. Learn more about assigning ATO reporting categories for Single Touch Payroll reporting.
  6. Select the option to Override the Employees' Wage Expense Account .
  7. In the Override Account field specify the expense account you created earlier.
    Here's our example:
  8. Click Employee and select the employee(s) taking paid parental leave.
    Here's our example:
    Linked employees window with one employee selected
  9. Click OK.
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title3. Exempt paid parental leave from calculating superannuation

Exempt paid parental leave from calculating superannuation

  1. Go to the Payroll command centre and click Payroll Categories .
  2. Click the Superannuation tab.
  3. Click the zoom arrow next to your superannuation category.
  4. Click Exempt.
  5. Select the Paid Parental Leave wage category to exempt from the superannuation calculation.
  6. Click OK.
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title4. Exempt paid parental leave from accruing entitlements

Exempt paid parental leave from accruing entitlements

Hourly employees

For hourly employees the entitlement will not accrue as there are no hours to calculate the percentage. This seems contradictory, but normally hourly employees will accrue leave as a percentage of hours worked. While they are on Paid Parental Leave, they are being paid via a Salary Wage category, rather than an Hourly Wage category. Therefore having no hours on the paycheque means that no leave will accrue.

Salary Employees

Salary employees will need to have the Entitlement(s) deselected in their card. This is because generally these employees will be set to accrue a flat amount of hours per Pay Period/Month/Year, and unless the entitlement is deselected in their card, the entitlement will continue accruing throughout the period of their Paid Parental Leave.

To deselect the Entitlement(s):

  1. Go to the Card File command centre and click Cards List .
  2. Click the Employee tab.
  3. Click the zoom arrow next to the relevant employee.
  4. Click the Payroll Details tab and choose Entitlements.

  5. Deselect any entitlements that should not be calculated during the Paid Parental Leave period.

    UI Text Box
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    When the employee finishes the paid parental leave you'll need to select these entitlements again so that the leave entitlements will accrue.

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title5. Pay the employee during their leave

Pay the employee during their leave

You can add the amount to be paid each pay period into the employee's standard pay. This means when you complete a pay run, the right amount will be paid to the employee.

  1. Go to the Card File command centre and click Cards List .
  2. Click the zoom arrow next to the employee taking paid parental leave.
  3. Click the Payroll Details tab.
  4. Click the Standard Pay option from the left-hand side.
  5. Set all wage category amounts (except the Paid Parental Leave category) to zero.
  6. Set the Paid Parental Leave category to the amount that is to be paid each pay period.
    Here's our example:
    Example standard pay for an employee with value entered against paid parental leave wage category
  7. Click OK.
  8. Repeat steps 2-7 for all other employees for whom parental leave is applicable.
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title6. Receive the payment from the government

Receive the payment from the government

When the employer receives a parental leave payment from the government, this needs to be recorded as a Receive Money transaction into the liability account created above.

  1. Go to the Banking command centre and click Receive Money . The Receive Money window is displayed.
  2. Specify the Amount Received.
  3. On the first line, specify the liability account created earlier in the Acct No. field.
    Here's our example:
    Example receive money transaction for parental leave monies
  4. Click Record.
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title7. Reset the employee's standard pay when they return to work

Reset the employee's standard pay when they return to work

  1. Go to the Card File command centre and click Cards List .
  2. Click the zoom arrow next to the employee.
  3. Click the Payroll Details tab.
  4. Click the Standard Pay option from the left-hand side.
  5. Click Reset to Original Amounts.
    Here's our example:
    Card information window wityh reset to original amount button highlighted
    The Paid Parental Leave payment will be removed from the employee's standard pay, and their normal Base Hourly or Base Salary will be reinstated.
  6. Click OK.
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title8. Record a clearing journal entry

Record a clearing journal entry

Based on the setup described above, you'll need to record a journal entry to move the parental leave funds from your software's liability account to the income account. This typically occurs at the end of the financial year, and it ensures the funds are accounted for correctly in your business reports.

However, you should check with your accounting advisor or the ATO to determine your business reporting requirements in regard to parental leave payments.

To record the journal entry:

  1. Go to the Accounts command centre and click Record Journal Entry . The Record Journal Entry window appears.
  2. Select the Tax Inclusive option.
  3. On the first line of the journal, debit the parental leave value from the liability account created earlier.
  4. On the second line of the journal, credit the same parental leave value to the income account created earlier.
    Here's our example:
    Example journal entry
  5. Click Record.
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<h2><i class="fa fa-comments"></i>&nbsp;&nbsp;Parental leave FAQs</h2><br>
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titleHow do I set up unpaid parental leave?

How do I set up unpaid parental leave?

To set up unpaid parental leave, you would need to create an hourly wage category for unpaid leave with a fixed rate of $0.00 per hour. For general information about setting up unpaid leave, refer to Leave without pay. For information on parental leave entitlements, refer to the Fair Work website.

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