Really costly parental leave

As regular readers know, I have been very concerned that schemes for paid parental leave do not add to the potential for gender-based discrimination in the workplace. My worry is that schemes that are government funded might still do this but creating incentives to take such leave in ways that are disruptive to workplaces. This will feedback into employers’ actions in creating workplaces and cultures that flexibly accommodate parents entering and leaving the workforce on a temporary basis. For this reason, I have favoured return to work tax credits to complement efficiently funded parental leave options.

This, of course, stands in contrast to schemes for paid parental leave that replace the parent’s entire salary for the period of leave. Most of these propose government funding but the ACTU has proposed a scheme that for many parents will be predominantly funded by their own employers. They propose:

  1. A national, Federal Government-funded maternity leave scheme of at least 14 weeks, paid at federal minimum wage rates plus 9% superannuation for all women including those who don’t work.
  2. Employers would contribute a top-up payment to fully replace the income of working women who earn more than the minimum wage. Income replacement should be at an employee’s ordinary time earnings.

Now part 1 is something that I can see as useful for social insurance reasons. However part 2 is something that will be extremely costly in terms of alleviating problems of gender-based discrimination and pay gaps between men and women. Put simply, every time an employer hires a woman (who is more likely to take parental leave), they face the additional cost of paying much of their salary for intermittent three or more monthly periods. Indeed, according to the ACTU site, it appears that if an employer is already providing such payments, they will be liable for allowing more leave.

The 14 week paid maternity leave would be on top of any existing paid maternity leave entitlements belonging to an employee.

For example, where a working mother earning $800 per week is already entitled to 14 weeks paid maternity leave at ordinary time earnings and 15% super, the new scheme would provide an additional 14 weeks paid maternity leave, taking the total amount of paid leave to 28 weeks.

The original entitlement remains unchanged. The new scheme would provide an additional government component of 14 weeks at the minimum wage plus 9% super.

My guess is that the ACTU is trying to be well-meaning in all of this but the economic consequences of this type of intervention seem frightening. So much so, that I keep hoping someone will tell me that they aren’t really arguing for that (please feel free to do so in the comments!). Put simply, the worst possible form of parental leave is an entitlement on employers to pay employees for their full pay when they take such leave. It will only lead to employers working out ways to avoid that liability; at best, pay restraint and at worst, ceilings that will be easy to see.

3 thoughts on “Really costly parental leave”

  1. I think the ACTU proposal is best seen as an ambit claim, designed to frame the expected outcome (part 1) as reasonable and modest.

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  2. I’ve always thought that maternity pay based on ordinary earnings goes against the principle of “Equal Pay for Equal Work”. Or is the value to society of a baby born to a poor mother less than the baby of a rich woman?

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