Paid parental leave

You'll need to set up three new accounts to track your parental leave:

• a liability account

• an income account

• an expense account

Create a liability account

1. Click your business name and choose Accounts.

2. Click Create account.

3. Leave the Account category set to Detail account.

4. For the Account type, choose Other liability.

5. Choose the applicable Parent header. This determines where the account will sit with your other liability accounts. If unsure, check with your accounting advisor.

6. Enter an Account number and Account name which suits your account list.

7. Choose the applicable Tax code. If unsure, check with your accounting advisor or the ATO.

8. Choose the applicable Classification for statements of cash flows. What is this?

9. When you're done, click Save.

Create an income account

1. On the Accounts page, click Create account.

2. Leave the Account category set to Detail account.

3. For the Account type, choose Other income.

4. Choose the applicable Parent header. This determines where the account will sit with your other income accounts. If unsure, check with your accounting advisor.

5. Enter an Account number and Account name which suits your account list.

6. Choose the applicable Tax code. If unsure, check with your accounting advisor or the ATO.

7. Click Save.

Create an expense account

1. On the Accounts page, click Create account.

2. Leave the Account category set to Detail account.

3. For the Account type, choose Expense.

4. Choose the applicable Parent header. This determines where the account will sit with your other expense accounts. If unsure, check with your accounting advisor.

5. Enter an Account number and Account name which suits your account list.

6. Choose the applicable Tax code. If unsure, check with your accounting advisor or the ATO.

7. Click Save.

1. Go to the Payroll menu and choose Pay items.

2. On the Wages and salary tab, click Create wage pay item.

3. For the Name, enter "Paid Parental Leave" or similar.

4. Choose the applicable ATO reporting sategory. Typically this will be the same ATO reporting category you've selected for your Base Hourly or Base Salary wage categories. If unsure, check with your accounting advisor or the ATO.

5. For the Pay basis, select the Salary option.

6. Select the option Override employees wage expense account .

7. In the accounts field, choose the expense account you created earlier.

8. Under Allocated employees, choose the employee(s) taking paid parental leave.

9. When you're done, click Save.

If you're not sure if superannuation should be paid on parental leave payments, check with your accounting advisor or the ATO.

Here's how to prevent super calculating on these payments:

1. Go to the Payroll menu and choose Pay items.

2. Click the Superannuation tab.

3. Click to open the Superannuation Guarantee pay item.

4. Under Exemptions, choose the Paid Parental Leave wage pay item you created above.

5. Click Save.

6. Repeat for any additional superannuation pay items you want to exclude from parental leave payments.

If you're not sure if a leave entitlement should accrue whilst on paid parental leave, check with your accounting advisor or the ATO.

If the leave shouldn't accrue, keep reading. Otherwise skip to task 5 below.

Hourly-based employees

For hourly employees the entitlement will not accrue as there are no hours to calculate the percentage. This seems contradictory, but normally hourly employees will accrue leave as a percentage of hours worked. While they are on paid parental leave, they are being paid via a salary wage pay item, rather than an hourly wage pay item. Therefore having no hours on the pay means that no leave will accrue.

Salary-based employees

Salaried employees will need to have the leave entitlement pay item excluded. This is because generally these employees will be set to accrue a flat amount of hours per Pay Period/Month/Year, and unless the entitlement is excluded, the entitlement will continue accruing throughout the period of their paid parental leave.

To exclude a leave entitlement

Complete these steps before making the fist payment to the employee whilst they are on parental leave.

1. Go to the Payroll menu and choose Employees.

2. Click to open the employee's record.

3. Click the Payroll details tab.

4. Click the Leave tab.

5. Click the delete ( ) icon for each leave entitlement to be excluded whilst on parental leave.

6. Click Save.

You can add the amount to be paid each pay period into the employee's standard pay. This means when you complete a pay run, the right amount will be paid to the employee.

1. Go to the Payroll menu and choose Employees.

2. Click to open the employee's record.

3. Click the Payroll details tab.

4. Click the Standard pay tab.

5. Take note of the wage pay items and amounts against each (you'll need to re-enter these after the employee returns to work).

6. For all wage pay items (except the Paid Parental Leave pay item) enter zero.

7. For the Paid Parental Leave pay item, enter the amount that is to be paid each pay.

8. Click Save.

When the employer receives a parental leave payment from the government, this needs to be recorded as a Receive money transaction into the liability account created above.

1. Go to the Banking menu and choose Receive money.

2. In the Bank account field, choose the account the payment is being received into.

3. If you've set up a contact for the payer, select them in the Contact field.

4. Enter a Description of transaction.

5. Select whether the amount is Tax inclusive or Tax exclusive.

6. On the first line, choose the liability account created earlier in the Account field.

7. Enter the Amount of the payment received.

8. (Optional) Enter a Description of this payment.

9. Check the Tax code and change it if required. If unsure, check with your accounting advisor or the ATO.

10. Click Record.

1. Go to the Payroll menu and choose Employees.

2. Click to open the employee's record.

3. Click the Payroll details tab.

4. Click the Standard pay tab.

5. Enter the employee's standard pay details against each wage pay item (as noted in Task 5 above).

6. Click the Salary and wages tab.

7. Click the delete ( ) icon to remove the Paid Parental Leave pay item.

8. Click Save.

The employee's standard pay is now reinstated and the paid parental leave pay item will no longer appear on their pay.

Based on the setup described above, you'll need to record a journal entry to move the parental leave funds from your software's liability account to the income account. This typically occurs at the end of the financial year, and it ensures the funds are accounted for correctly in your business reports.

However, you should check with your accounting advisor or the ATO to determine your business reporting requirements in regard to parental leave payments.

To record the journal entry:

1. Go to the Journals menu and choose General journal.

2. Check the Date of the transaction and change it if required.

3. Select whether the transaction will display in GST reports as a Purchase or Sale.

4. Enter a Description of transaction.

5. If this is an end of year adjustment, select the option EOFY adjustment.

6. Select the Tax Inclusive option.

7. On the first line of the journal, choose the liability account created earlier, and enter the amount in the Debit column.

8. On the second line of the journal, credit the same parental leave value to the income account created earlier.

9. Click Record.

To do this you'd need to create an hourly wage pay item for unpaid leave with a fixed rate of $0.00 per hour. For general information about setting up unpaid leave, refer to Leave without pay. For information on parental leave entitlements, refer to the Fair Work website.