Your Guide to Parental Leave as an Employer
Your employee is going on parental leave? Congrats! Here's what you need to know.
A friendly guide for Australian small business owners (including changes from 1 July 2026)
So, one of your team members has just shared some wonderful news: they're expecting! First things first, congratulations to them, and to you. A growing family in your team is something to celebrate.
But if you're like most small business owners here in Melbourne (or anywhere in Australia, really), your second thought was probably: "Okay… what do I actually need to do now?"
Don't worry, it's far less daunting than you think. Here's everything you need to know, in plain English.
THE BASICS
What is my employee entitled to?
There are two key entitlements to wrap your head around:
Under the Fair Work Act, eligible employees are entitled to 12 months of unpaid parental leave, with their job protected while they're away.
On top of unpaid leave, your employee may be eligible for Paid Parental Leave funded by the Australian Government — and from 1 July 2026, that's 26 weeks of payments.
Here's the part that surprises many employers: the PPL is paid by Services Australia, but it flows through your payroll. You're essentially the middle person, the government funds it, and you pass it on to your employee. It doesn't come out of your pocket.
UPDATES
What's changing from 1 July 2026?
Two big updates kicked in on 1 July 2026:
The total PPL entitlement increased from 24 weeks to 26 weeks, which adds up to a full six months of government-funded leave.
The "reserved" portion for the non-birthing parent (the weeks set aside on a use-it-or-lose-it basis) increased from 3 weeks to 4 weeks, encouraging both parents to share the care.
ACTION
What do I need to put in place?
Less than you might think. Your employee does the heavy lifting here: they apply directly to Services Australia, not through you.
Once their claim is approved and you're confirmed as the employer who'll pass on the payments, you'll receive a letter of confirmation from Services Australia. That's your cue to get things set up in your payroll system.
PLANNING
Does timing make a difference?
It can, actually, and it's worth a conversation with your employee.
PPL rates are tied to the National Minimum Wage, and the rate is set at the time the leave commences. Since the minimum wage typically increases on 1 July each year, an employee starting their PPL just after 30 June may receive a higher rate than one starting just before.
It's also worth thinking about how annual leave fits into the picture. Some employees choose to use accrued annual leave before starting their PPL, which can shift their start date. There's no one right answer, but being aware of the timing means you and your employee can plan together.
PAYROLL
How do I handle Paid Parental Leave in Xero?
If you run your books in Xero, here's the gist:
✔️ Receiving the funds. Services Australia will deposit the PPL funds into your business bank account, usually as a lump sum in advance.
✔️ When that money lands, you'll need to create a new account in your chart of accounts for it, and reconcile the incoming payment against it.
✔️ HANDY TIP: Make sure that the funds from Services Australia are reconciled as GST free!
✔️ Paying it out through payroll. When you run payroll, set up a specific pay item (line item) for PPL so it's clearly separated from ordinary wages.
✔️ PPL is calculated on a days basis, so line up the PPL days with your pay cycle to keep everything tidy.
✔️ The accounting logic. The PPL you pay out is recorded as an expense — but because the government has already given you the funds, it's cost neutral to your business overall. The money in matches the money out.
More Xero info here: central.xero.com/s/article/Set-up-parental-leave
REQUIREMENTS
What are my tax and super obligations?
This is where it gets refreshingly simple:
You withhold PAYG tax on the PPL payments just as you would for normal wages. Business as usual.
Good news — Services Australia pays the superannuation on PPL, not you. It goes to your employee's super fund directly, so there's nothing extra for you to calculate or pay.
PPL is not included in your payroll tax or workers compensation calculations, which keeps things clean.
PERSPECTIVE
What's the good news in all this?
Honestly? Quite a lot. Businesses that handle parental leave well retain great people. When an employee feels supported through one of the biggest moments of their life, they remember it, and they come back to a workplace they're loyal to.
It's also a genuine opportunity to strengthen your business. Covering someone's leave nudges you to document your processes, cross-train your team, and build systems that don't depend on any single person. That resilience pays off long after your employee returns.
Got questions? We've got you!
This post is general information only and isn't legal or financial advice. For guidance on your specific situation, chat with your accountant, bookkeeper, or the Fair Work Ombudsman.