Although the process of managing Parental Leave in Xero is quite straightforward once the Accounts and Pay Items have been created, Employers need to be mindful there are a number of different scenarios that will change the way Parental Leave is processed in Xero.

Process Unpaid Parental Leave

Employees can apply for an initial 52 weeks of Parental Leave and then an additional 52 weeks. Of these 52 weeks, only 18 are financially supported by the Government through the Parental Leave Pay Scheme. It is also important to understand that the Parental Pay Leave Scheme does not provide an additional entitlement, it complements the Parental Leave rights established by Fair Work by providing financial support to eligible parents whilst on Parental Leave. Therefore an Employee's Unpaid Parental Leave should be processed even during the time the Employee is receiving Government Funded Parental Leave.

Go to Payroll > Employees
Open the Employee details and click on the [Leave] Tab

è The Employee's Leave Tab
Click on [New Leave Request]

è The New Leave Request screen opens
Select/Enter the following details:
- Type of request > Select: Parental Leave (unpaid)
  Note: Parental Leave (unpaid) is a default leave type pre-set up in all Xero Organisations.
- Description > Type: Parental Leave
- Start and End Date > Type the date from and to of the Parental Leave period taken
  Note: you can include both the period funded by the Government and the unpaid period in the same request.
- Hours > Make sure the total hours of leave calculated by Xero are correct
Click on [Approve]

Note: this is not the only way Parental Leave can be processed, you could, for example, split the leave taken into smaller periods, if the Employee is not willing to commit to a number of weeks at the time they are starting their leave, and then keep processing other leave periods as you are negotiating with your Employee for additional time off. Also, depending on your internal payroll processes, your Employee could process the Leave Application(s) through My Payroll and submit it to you for approval.

Process Government Funded Parental Leave

Once you set up the Parental Leave Pay Item correctly and assign it to the Employee Pay Template, Parental Leave is processed as any other Ordinary Earnings Pay Items.

However, Employers are not obligated to pay Parental Leave to their Employees before they receive the funds from Services Australia. Therefore, if an Employer receives a bulk payment of Parental Leave Pay of, for example, 6 weeks, which then pays to the Employee into one weekly /fortnightly Pay Run, the calculated tax needs to be adjusted to only deduct the correct amount.

When Parental Leave Pay is paid directly to the individual by the Government, this is paid Fortnightly into their account. Therefore, the correct Tax Tables to use to correctly calculate the Tax deducted on the Payslip are the Fortnightly Tax tables. However, if your standard Payroll happens weekly and you decide to pay Parental Leave Pay each week, regardless of how often you receive it from the Government, then the weekly tax tables should be applied.

Adjusting the Tax Rate when paying a bulk sum of Parental Leave

In this example, the Employer has decided not to pay Parental Leave Pay to the Employee until the funds are received from the Government. The Organisation's standard payroll is fortnightly and the Employer has to process a bulk payment of 6 weeks of Parental Leave at $20.33 per hour (Minimum Wage Pay Rate of the 2021-2022 Financial Year).

Go to Payroll > Pay Employees
From here you can either include the Parental Leave payment with your other Employees' pays or create a separate unscheduled pay run
Open the Employee's Pay Run

è The Employee's Pay
Go to https://paycalculator.com.au/

è The Pay Calculator Website
Select/Enter the following Details
1. Type the total Parental Leave gross fortnightly payment (in this example 76 hours * 20.33 = $1,545.08)
2. Make sure no additional tax options (i.e. Student Loan) are selected
3. Multiply the calculated fortnightly tax by the number of fortnights of Paid Parental Leave paid (in this example $188 * 3 = $564)
4. Subtract the tax calculated for the 6 weeks from the tax calculated in Xero (in this example $1,200 - $564 = $636)
Return to Xero's Employee Pay and click on [Add Tax Line]

è The Add Tax Line screen opens
Enter a description for your adjustment and click on [OK]
In the Tax Adjustment Line type the difference to subtract from overstated tax with a negative sign (in this example -$636)

è The Adjustment Tax Line
Finalise the Pay Run as per normal

Receive Parental Leave Funds from Services Australia

Create a New Contact called Services Australia or Centrelink
Go to the Bank Feeds screen and find the Parental Leave Payment from the Government
Select the [Create] Tab

è The Bank Feed screen
Select/Enter the following details:
- Who > Select the Contact: Services Australia (or Centrelink)
- What > Select: Govt Payments - Parental Leave (29#)
- Why > Type: Parental Leave Funds #employeename
Click on [OK]

Process Dad and Partner Pay

As Dad and Partner Pay is paid directly to the individual by Services Australia, this entitlement is simply processed as an Unpaid Leave Item in Xero.

Go to Payroll > Employees
Open the Employee details and click on the [Leave] Tab

è The Employee's Leave Tab
Click on [New Leave Request]

è The New Leave Request screen opens
Select/Enter the following details:
- Type of request > Select: Dad and Partner Pay
- Description > Type: Parental Leave (Dad and Partner Pay)
- Start and End Date > Type the date from and to of the Dad and Partner 2-week pay period taken
- Hours > Make sure the total hours of leave calculated by Xero are correct
Click on [Approve]

Note: Depending on your internal payroll processes, your Employee could process the Leave Application through My Payroll and submit it to you for approval.