Preparing your business for parental leave means getting payroll, cash flow and recordkeeping ready before an employee starts leave. Set up clear payroll categories to track Parental Leave Pay received and passed on to the employee, and organise the required scheme registration if your business must provide the payments. The government pays the business so it can pass the money on to eligible employees.
It’s understandable to focus first on supporting your employee and keeping daily work moving. A clear, well-organised process can help with both, giving you a better view of leave-related payments and the staffing and cash-flow decisions ahead.
This guide covers practical steps for preparing records, setting up access to the Paid Parental Leave scheme and planning for an employee’s time away. You’ll also learn how to create a manageable process that supports your team while keeping the business on track.
Key Takeaways
- Separate parental leave payments in your payroll records so amounts received and passed on are easier to track.
- Prepare a cash-flow plan that accounts for payment timing, staffing costs and the work that still needs to be done.
- Use an employee’s notice to start a clear process for confirming leave details and organising the next steps.
- Plan temporary cover and handovers around essential tasks, responsibilities and the employee’s return.
- Connect leave planning with your broader business goals to make the process more manageable for you and your team.
Setting up accounts and categories to track parental leave
- Separate government payments from ordinary wages. Create a distinct payroll category for Parental Leave Pay and use it consistently for each eligible employee. Track the amount received from the government separately from the amount passed on through payroll. This creates a clear audit trail and distinguishes scheme payments from ordinary salary, annual leave and any employer-funded parental leave.
- Build a dedicated account structure in your bookkeeping system. Set up accounts to record incoming scheme payments and outgoing employee payments separately. For example, label them “Parental Leave Pay received” and “Parental Leave Pay paid to employee”. Use matching payroll categories where your software allows, and reconcile the entries so these payments are not blended into regular wages.
- Check the employee’s leave context before configuring records. Under the Fair Work Act, employees generally need at least 12 months of service with their employer to take unpaid parental leave, according to the Fair Work Ombudsman. Casual employees may qualify after 12 months of regular and systematic employment, if they would reasonably expect work to continue. Record the relevant employment details separately from government scheme payments.
- Set up government access before a claim needs processing. To register online for the Paid Parental Leave scheme, an employer needs an individual PRODA account, a business registered in PRODA, and a PRODA account linked to Business Hub. PRODA is the online identity verification and authentication system for secure access to government services. An organisation must be registered in PRODA before someone can access a service on its behalf.
- Register each employing business correctly. If your business must provide Parental Leave Pay, register the organisation with Services Australia online. A payroll manager handling businesses with different ABNs must register each business separately for the scheme. Keep a record of which business account relates to each employee to reduce the risk of recording payments under the wrong entity.
- Know when an employer determination or opt-in applies. Services Australia sends an employer a letter if it determines the business must provide Parental Leave Pay to an employee. An employer may also opt in when it isn’t required to provide the payment, but must do so before the employee submits their claim. Store the determination or opt-in record with the employee’s payroll setup notes.
- Save registration evidence and payment records together. After online registration, the employer receives an online notification confirming registration. Save it with the scheme account details and relevant payroll records. For each payment, retain the amount received, the amount passed on, and the associated employee and pay period. These records make reconciliation easier and help explain unusual entries later.
- Review the setup before the first payment is processed. Use a checklist to confirm the correct business account, employee record, payroll category and bookkeeping accounts. Check that incoming and outgoing entries remain distinguishable in reports. Australian employers have ongoing requirements under the Paid Parental Leave scheme, so assign responsibility for monitoring scheme correspondence and updating records when leave or payment details change.
How should a small business plan cash flow and staffing for an employee’s parental leave?
- Map leave dates against your business calendar. A useful first move in preparing your business for parental leave is to map the expected absence against trading patterns, project deadlines and seasonal demand. Add key dates to your forecast and staffing plan. For example, a seasonal business may need extra cover before its busiest period, even if leave starts earlier. Keep assumptions visible so you can revise them as plans change.
- Distinguish scheme payments from business revenue. Under Australia’s Paid Parental Leave scheme, the government pays the business so it can pass Parental Leave Pay to an eligible employee. Record expected scheme payments separately from sales income and ordinary payroll costs, and forecast the amount passed on as a corresponding outflow. This makes the payment trail clear and prevents pass-through funds from being treated as available for other expenses.
- Build a forecast with realistic scenarios. Create a baseline cash-flow forecast, then add expected leave-related payments and temporary cover costs. Note when income may arrive, when wages and other commitments fall due, and when scheme payments are expected. Add another scenario for changes such as a revised leave date or delayed customer payment. A flexible forecast is more useful than one built on assumptions that no longer fit.
- Assess the work before choosing cover. List essential duties, approvals, customer responsibilities and tasks that can pause. Compare options such as redistributing work, hiring temporary support or adjusting delivery schedules. For example, a small team could reassign routine enquiries internally while arranging cover for specialist work. Base the decision on workload and skills, not just the absent employee’s job title.
- Include onboarding in your cover plan. If you need temporary support, define the role’s priorities, required skills and handover materials. Allow time to learn systems and responsibilities before the employee starts leave. If existing staff take on extra duties, name each task owner and identify work to deprioritise. Clear allocation helps reveal the capacity and cost implications of each staffing option.
- Model the government payment period accurately. Government-funded Parental Leave Pay is capped at up to 130 days for children born or adopted on or after 1 July 2026. Use the child’s birth or adoption timing when forecasting scheme payments. Keep this distinct from any employer-funded leave, which has a separate effect on payroll and cash flow. Don’t assume government payments cover every staffing expense.
- Review actual results against your forecast. Schedule regular reviews between the payroll contact and the person arranging cover. Compare actual cash movements with projections, then update expected payments, roster changes and task ownership. If a customer project moves or temporary cover starts earlier, revise the forecast promptly. Preparing your business for parental leave means keeping the plan current as operational details evolve.
- Align staffing decisions with your business goals. Decide which responsibilities must continue, which can pause and what capacity the business can sustain. If cash-flow assumptions and staffing choices are difficult to bring together, business coaching and strategy support can help shape a practical operating plan. Use it to protect essential work while making room for the employee’s leave.
What steps should employers take when an employee gives notice of parental leave in Australia?
- Acknowledge the notice and start a confidential record. Record the date received, the employee’s proposed leave start, expected duration and preferred contact method. Restrict access to these details, then confirm who will coordinate payroll, team planning and scheme administration. This gives the employee one clear point of contact and helps avoid relying on informal conversations or scattered messages.
- Clarify the leave dates and intended arrangement. Ask the employee to outline whether they expect to take a continuous period of leave, and note any proposed changes. Eligible employees can take up to 12 months of unpaid parental leave, or up to 24 months if the employer agrees to an extension. Use the employee’s written request and agreed dates to guide planning.
- Record extension requests and their timing. An employee requesting an additional 12 months of unpaid parental leave must make the request in writing at least 4 weeks before the first leave period ends. Save the request and the employer’s response with the original leave record. Set a reminder based on the first period’s end date, so the request can be considered before the employee’s planned return.
- Direct the employee to relevant entitlement information. The Fair Work website provides information about parental leave entitlements. Use it to understand the workplace entitlement framework, then discuss the employee’s planned dates and questions through your usual workplace process. Keep the discussion focused on the employee’s circumstances rather than assuming everyone has the same work pattern or leave arrangement.
- Separate government scheme steps from workplace leave. Parental Leave Pay is part of the Australian Government’s Paid Parental Leave scheme and has its own claim and employer processes. The employer may need to provide payments after receiving an Employer Determination. Record scheme-related actions separately from the employee’s unpaid leave request, and identify who will manage incoming correspondence and payroll processing.
- Use the Employer Toolkit to organise scheme administration. Australian employers can use the Employer Toolkit for information and resources about the Paid Parental Leave scheme. Assign responsibility for reviewing relevant materials and handling the employer’s scheme tasks. If your business has more than one payroll contact, document who will act as the main administrator and who will provide backup during leave periods.
- Agree how you’ll stay in touch during leave. Discuss the employee’s preferred contact method and what information they wish to receive about workplace changes. Employees taking continuous unpaid parental leave can access up to 10 keeping in touch days during the first 12-month period, according to the Fair Work Ombudsman. Record any agreed arrangements clearly, and keep work-related contact separate from routine personal updates.
- Close the loop with a written summary. Send the employee a concise record of the dates discussed, next steps, key contacts and any unresolved items. Include who is responsible for scheme administration and how changed dates should be communicated. A shared written summary gives both the employee and the business a practical reference as the leave period approaches.
Australia’s Paid Parental Leave scheme includes Parental Leave Pay, which helps eligible working parents take time off to care for a newborn or recently adopted child. Under the scheme, employers are paid so they can support employees while they care for a newborn or recently adopted child. When preparing your business for parental leave, keep scheme administration distinct from the employee’s workplace leave record, and direct employees to relevant claim information. Government-funded Parental Leave Pay limits have changed over time, so check the applicable cap for the child’s birth or adoption date.
From 1 July 2025, the Australian Government will pay super guarantee payments for eligible employees on Paid Parental Leave directly to their superannuation funds after the relevant financial year ends. People in Australia can call the multilingual phone service for Centrelink payments and services, and businesses like The Bucket List Accountant can help navigate payroll obligations during these transitions.
How should businesses arrange temporary cover, handovers and workload during parental leave?
- List responsibilities before choosing cover. Break the employee’s role into recurring tasks, deadlines, decisions and relationships. For example, separate weekly client updates from monthly reporting and specialist approvals. Mark each task as essential, transferable, deferrable or suitable for stopping temporarily. This helps you plan around actual work rather than replacing a job title with an identical role.
- Choose a cover arrangement that fits the work. Consider whether existing employees can absorb tasks, temporary support is needed, or some work can pause. Match responsibilities to skills and capacity. A team member might handle routine customer enquiries while temporary support takes on specialist work. Name an owner for each task, and review existing workloads before assigning extra duties.
- Set clear boundaries for work that will pause. Identify projects, services or internal tasks that can wait until the employee returns. Tell affected customers or colleagues what will continue, who will respond, and how urgent matters will be handled. For example, a business could keep essential support available while delaying a non-urgent project. Clear boundaries reduce confusion and protect the team’s capacity.
- Write a handover that supports independent decisions. Document current projects, key contacts, recurring deadlines, approval steps and where important files are stored. Include examples of common issues and the agreed response. A useful handover explains what to do and when to escalate a decision. Review it with the employee and cover person together, then update it as work changes.
- Schedule practical knowledge-transfer sessions. Use working sessions to show the cover person how essential tasks are completed in your systems. Let them complete a task while the employee is available to answer questions. For example, practise preparing a regular report and checking its figures. Record process notes as you go, so the information remains accessible after the handover meeting.
- Agree how contact and keeping in touch will work. An employee taking continuous unpaid parental leave can access up to 10 keeping in touch days during the first 12-month period, according to the Fair Work Ombudsman. If unpaid parental leave extends beyond 12 months, an additional 10 keeping in touch days may be available. A day suggested by the employee cannot occur within 14 days of birth or placement. A day suggested by the employer cannot occur within 42 days.
- Plan for the employee’s return as part of the handover. An employee returning from parental leave has the right to return to their former position, or a suitably qualified available position nearest in status and pay if that role no longer exists. Keep a record of their substantive role and responsibilities. Discuss a gradual increase in working hours as a possible workplace arrangement, and agree how duties will transition back.
- Review workload during and after the leave period. Set regular check-ins with the cover person and manager without assuming the employee on leave must manage work. Track missed deadlines, recurring bottlenecks and tasks that have expanded. Before the return, confirm who owns open work and prepare an updated handover. A practical review helps restore responsibilities smoothly and highlights useful process improvements.
A day suggested by the employer should be discussed and agreed in advance, with its purpose and the work involved made clear. Keep any agreed contact proportionate, and make sure the cover person knows which decisions remain with them and which need referral. The earlier Australian paid parental leave arrangement described provided one 18-week block. The parental leave arrangement described allowed the additional six weeks to be taken before the child turned two.
Treat the return plan as part of the cover arrangement. Where flexible work is being considered, record the proposed pattern, responsibilities, communication expectations and how the team will manage urgent work. In an example flexible-work arrangement, an employer suggests reviewing the arrangement after 8 weeks. Use that review to discuss what is working, whether workload is manageable and whether adjustments are needed. Agree who will raise concerns and how any changes will be confirmed, so the employee and team have a shared understanding of the plan.
The Bucket List Accountant: Business Coaching & Strategy
The Bucket List Accountant can help you connect parental leave planning with how you want your business to operate. If staffing decisions, cash-flow forecasts and payroll processes feel difficult to coordinate, Business Coaching & Strategy can help you shape a practical plan around your priorities. Small Business Accounting and Business Tax Advisory and Accounting can support clearer financial records and business decisions. The right starting point depends on where you need guidance, whether that’s organising accounts, reviewing tax considerations or mapping team responsibilities.
Preparing for leave is also a chance to build systems that support your goals beyond one employee’s absence. If you’d like help turning your next steps into a considered business plan, contact The Bucket List Accountant in Warrnambool, Geelong or Colac.
Make your next step a considered one
Parental leave planning can be more than a response to an upcoming absence. It can help you build a business that supports your team and the life you want beyond work. Choose one practical action to move forward: review your leave records, map the responsibilities that need cover, or set time aside to consider how the plan fits your wider goals. Preparing your business for parental leave becomes easier when you turn the moving parts into clear decisions, made one at a time.
If you’d like guidance connecting your business decisions with your financial and personal priorities, contact The Bucket List Accountant. Take the next step at a pace that feels right, and keep building towards the business and life you want.
The information on this website is general in nature and is provided for information purposes only. It is not legal, financial or professional advice. You should obtain specific, independent advice relevant to your circumstances.
Article by
David Patterson
With more than three decades of experience helping business owners grow profitable, sustainable businesses, he focuses on one simple idea: Your business should give you a life, not take one away.
David works with small business owners who are doing okay but feel stretched, time-poor, or stuck. He helps them regain control of their numbers, build stronger systems, and create the financial freedom to start ticking off the things that matter most, now... not "someday".
He is the creator of the Bucket List Business Program, host of The Bucket List Accountant Podcast, and a passionate believer that success isn’t measured by revenue alone, it’s measured by the life your business allows you to live.
Disclaimer
“The information on this website is general in nature and is provided for information purposes only. It is not legal, financial or professional advice. You should obtain specific, independent advice relevant to your circumstances.”