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Bookkeeping – Paid Parental Leave - What is Parental Leave Pay Australia & how do you enter in the bookkeeping accounts?

images/Bookkeeping.jpg1.   Explaining Paid Parental Leave / Parental Leave Pay

Today we explain what is the Paid Parental Leave scheme, and how to do the bookkeeping in your accounts. The scheme became compulsory on 1 July 2011 – it is an offer from the government of up to 18 weeks paid parental leave and is offered to eligible working parents of children born or adopted on or after 1 January 2011. The government makes a payment to the employer to then pass on to the employee. This post explains generally what is involved to setup and record paid parental payments within your software.

What is the current rate of parental leave?

The rate is paid at the National minimum wage. For more information see Human Services Paid Parental Leave for employers.

2.   How to does the business treat the funds received?

In accordance with Australian Accounting Standards, Paid Parental Leave funds you receive from us must be treated as a liability until you have provided Parental Leave Pay to your employee. You shouldn't account for Paid Parental Leave funds as revenue or an expense. See Reporting Requirements.

3.   How to do the bookkeeping for Paid Parental Leave (PPL)

1.     Create an account to track parental leave - We need to create a Liability account to track your Parental Leave. Alternatively, depending on your Parental Leave reporting obligations, you may want to create an Expense account to track this leave instead of a Liability account. Speak to your accountant or the ATO for the appropriate solution based on your circumstances.

2.     Create a new wages category – use the Salary type (no hours will be used) called Paid Parental Leave.

3.     Exempt Paid Parental Leave from calculating superannuation (eg. via the Super SG Category, exempt button in MYOB).

4.     Exempt Paid Parental Leave from accruing entitlementsdepending on the way the employee is set up (eg. In both Holiday and Sick you can Exempt the PPL wage in MYOB (or by default, depending on which software you use) -

a.     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 PPL, they are being paid via a Salary Wage category, rather than an Hourly Wage category. Therefore having no hours on the pay cheque means that no leave will accrue.

b.     Salary Employees - 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.

5.     Note: When the employee finishes the PPL you will need to select/turn ON these entitlements again so that the leave entitlements will accrue.

6.     Receiving the payment from the government. When the employer receives parentalleave payment from the government, this needs to be recorded as a Receive Money transaction into the Liability account created.

7.     Action - when my employee is taking PPL, and Centrelink has paid the business -
In MYOB for example, you go to the standard pay and zero all the salary or hourly $ amounts, and against the Paid Parental leave category, enter the amount that is to be paid, as paid to the business (it is often several weeks in one go).

8.     Note: Paid parental leave and Payment Summaries - If you include the paid parental leave amount in the Gross Wages on your Payment Summary, you will need to account for this if you attempt to reconcile the total from the Payment Summaries with the total in your Wages & Salaries expense account. The paid parental leave amount is not shown as an expense, as it is in the Liability account, not wage account (to offset against the amount paid to you), and therefore it is expected that the Payment Summary total will be higher than the total of the Wages & Salaries expense account. For more information on Payment Summaries, see the MYOB support note Preparing and printing Payment Summaries.

9.     Removing paid parental leave - When an employee returns to work after parental leave, their card needs to be updated so the Paid Parental Leave payment will be ticked OFF from the employee's standard pay, and their normal Base Salary or Hourly will be reinstated.

Need help? Not sure? Call for FREE 30min advice / strategy session today!

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Accounting Software Australia, MYOB, Quickbooks, accounts software, bookkeeping software
Accounting Software Australia, MYOB, Quickbooks, accounts software, bookkeeping software
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