What are you entitled to?
As long as you’ve been working for your employer for at least six months, you’re entitled to take six months of parental leave – or 12 to qualify for 12 months’ leave.
However, they’re not required to pay you anything – New Zealand’s paid parental leave scheme for the primary carer is paid by the Government. It gives those eligible up to $754.87/week before tax, for 26 weeks. Make sure you clock that number is before tax – that’s not the amount that will hit your bank account (and the gross number can also change based on your average weekly earnings before taking leave).
Those who are self-employed can also qualify for it. When those payments end, you’re entitled to the “Best-Start” payment of $73/week until your child is 1, after which that entitlement is means-tested up to age 3.
What does your employer offer?
Some employers offer extra parental leave payments or benefits – and I say hooray for those companies, it makes such a difference when new parents aren’t financially stressed!
Crayon compiles a voluntary register of companies that offer “enhanced” parental leave. Founder Stephanie Pow says it’s not just the sole preserve of the corporate giants any more.
“Offering more than the statutory minimum is becoming a strategic move for businesses of all sizes looking to attract and retain top talent.”
She says an increasing number of employers are stepping in to fill obvious policy gaps.
“New Zealand lags behind – one of only three developed countries with no paid partner’s leave, primary carer leave that ranks in the bottom quartile globally, and the dubious title of having the least affordable childcare in the world”.
But before you chuck in your job to work for one of the companies on Crayon’s list, check the eligibility criteria. Most will require that you’ve worked there for a set period before you qualify for those benefits.
Taxing times
Tax is something that’s easy to overlook when planning parental leave – but getting it wrong could result in an unwelcome bill. The key thing to remember is if you will receive any other income while receiving parental leave payments, one of those income streams will likely need to be on a secondary tax code.
“Other income” includes things like annual leave you may take when you stop work, or your employer paying all or some of your salary for a period after you go on leave. If you can have parental leave payments start once those payments cease, it should help simplify things. Just don’t leave it to the payroll department to select the right tax code – you’re the one in the gun if you get it wrong.
Understand the impact on your leave
You accrue annual leave days while you’re on parental leave, but that leave is only required to be paid at the rate of your average weekly earnings over the past 12 months. For example, if you take a holiday after you’ve been back at work for three months, your leave will be paid at 25% of your usual rate. That’s particularly important to clock if you planned to, say, use a day’s annual leave each week to only work four days as it will have an impact on your take-home pay.
It’s not an ideal system when your finances are likely at their weakest, and you’ll likely need your leave more than ever! The good news is, the Government is planning to change that as part of broader changes to the Holidays Act. The bad news is the proposed bill is currently being redrafted, with the minister Brooke Van Velden just before Christmas saying, “Not only have I heard from submitters that further simplification is possible, but there were some who believed that what we put out for consultation was more complex and had higher compliance costs than the legislation we have now.” Sooo, I don’t expect that to change any time soon.
The lingering financial impact
Let’s be honest, if you were only concerned about money, you probably wouldn’t have kids. Regardless, there are financial implications you may not have considered.
One of the biggies is KiwiSaver – because money you don’t contribute can’t benefit from compounding investment returns. That’s part of the reason why Retirement Commission data shows men in their 40s have, on average, 25% more in their KiwiSaver than women.
While fixing this likely requires systemic change, there are some things you can do. See if you can put in at least enough over the course of a year to get the Government’s tax credit of $521.43 – which is free money after all. One option to help and a way to get you about halfway there is the IRD gives you the option choice to deduct 3% from your paid parental leave payments – and if you do, they will also make ‘employer’ contributions of 3%. But of course, only do this if you can spare the funds while on leave, as your KiwiSaver funds aren’t readily accessible.
The other thing to consider is remuneration reviews – some employers will include you in them even when you’re on parental leave, which at a minimum can help your income keep pace with inflation.
Once you’ve got your head around these things, we get to the nitty gritty of the financial planning – which to be honest, requires its own separate column!
