Employer-Funded Parental Leave and Baby Priya's Law: What Small Business Owners Need to Know

From time to time, employment law changes in ways that require businesses to rethink how their policies and employment contracts operate in practice.

One of the most significant recent changes relates to paid parental leave provided by employers.

From 7 November 2025, new protections introduced under Baby Priya’s Law affect businesses that offer employer-funded paid parental leave in addition to the Australian Government’s Paid Parental Leave scheme.

For many small and medium business owners, this change may not be widely known yet. However, it is important to understand how it works, what has changed under the Fair Work Act, and what practical steps you should take to ensure your employment arrangements remain compliant.

Understanding the Two Types of Parental Leave Payments

Before looking at these recent changes, it is important to understand the difference between government-funded parental leave and employer-funded parental leave, because Baby Priya’s Law only applies to one of them.

Government-funded Paid Parental Leave:

The Government Paid Parental Leave scheme is administered by Services Australia.

Eligible employees receive payments funded by the government to support them while they take time away from work after the birth or adoption of a child.

Key points:

• Payments are funded by the government, not by the employer.

• Employers may administer the payments through payroll, but the funds ultimately come from the government.

• Eligibility is determined by Services Australia, not by the employer.

• The scheme operates separately from any leave entitlements provided by the employer.

This government scheme is not affected by Baby Priya’s Law.

Employer-funded Paid Parental Leave:

Many businesses choose to offer additional paid parental leave as an employment benefit. This may appear in:

• employment contracts

• enterprise agreements

• company parental leave policies

• internal benefits programs

These payments are funded directly by the employer and are typically offered as a way to support employees and attract or retain talent.

It is this employer-funded parental leave that is affected by the new legal protections.

What is Baby Priya’s Law?

Baby Priya’s Law forms part of the Fair Work Amendment Act 2025 and introduces new protections relating to employer-funded paid parental leave.

In simple terms, the law means that employers generally cannot refuse or cancel employer-funded paid parental leave because a child is stillborn or dies.

The entitlement remains in place if the employee would have been entitled to the leave had the child been born alive.

These protections apply where the leave relates to:

• the birth of the employee’s child

• the birth of the employee’s partner’s child

• the placement of a child through adoption

The protections apply where the stillbirth or death occurs on or after 7 November 2025.

Employers who breach these provisions could face civil penalties under the Fair Work Act.

What has actually changed?

Before this amendment, some employer-funded parental leave schemes allowed businesses to cancel the leave if there was no longer a living child.

For example, a policy might have stated that paid parental leave only applied where the employee was caring for a newborn child.

Under the amended legislation, that type of arrangement is now largely prohibited.

From November 2025 onwards, if an employee is entitled to employer-funded parental leave, the employer generally cannot withdraw that entitlement solely because of stillbirth or the death of the child.

The law recognises that parental leave is not only about caring for a newborn. It also relates to:

• physical recovery from childbirth

• mental health and wellbeing

• grieving and adjusting to a traumatic life event

This legislative change formally acknowledges that employees may still require time away from work in these circumstances.

Are there any exceptions?

Yes. However, the exceptions are limited and should be interpreted carefully.

1. Existing contractual terms that allow cancellation

If an existing employment contract or enterprise agreement, created before 7 November 2025, already contains a clause allowing employer-funded parental leave to be cancelled in these circumstances, that clause may still operate.

However, employers cannot introduce new terms after that date to create or expand such cancellation rights.

Any attempt to amend contracts or policies after November 2025 to avoid the new protections is unlikely to be valid.

2. No entitlement existed under the original terms

The protections may not apply if the employee was never entitled to employer-funded parental leave under their existing employment terms.

For example, if the leave benefit was structured in a way that clearly excluded the situation before the legislative change.

Again, employers cannot update contracts after November 2025 to remove or reduce entitlements in response to the law.

3. A different employer leave specifically applies

If an employer provides a separate form of leave specifically designed to cover stillbirth or the death of a child, this may operate differently.

However, there are important limits.

Employers cannot rely on the following as substitutes:

• Compassionate leave under the National Employment Standards (NES)

• Unpaid parental leave under the NES

• Employer leave that has the same or similar effect as these NES entitlements

This distinction is important because some businesses may assume compassionate leave replaces parental leave. In most cases, it does not.

What this means for your business

For many businesses, this change will not require a complete overhaul of existing policies. However, it does mean you should take a moment to review how parental leave is structured in your employment documentation.

A few practical steps can help ensure you remain compliant:

1. Review your employment contracts and policies

Start by reviewing:

• employment contracts

• parental leave policies

• employee handbooks

• enterprise agreements

Look for:

• clauses that link paid parental leave strictly to the birth of a living child

• cancellation provisions tied to birth outcomes

• unclear or outdated wording

Where necessary, update documentation to reflect the recent changes.

2. Ensure managers understand the change

In many workplaces, the first conversation about parental leave happens between an employee and their direct manager.

Managers should understand that employer-funded parental leave cannot usually be withdrawn because of stillbirth or the death of a child.

Clear internal guidance can help avoid difficult or legally risky conversations at a very sensitive time.

3. Prepare a simple process for sensitive situations

While these situations are rare, it helps to have a straightforward approach in place.

For example:

• speak with the employee about their preferences

• confirm whether they wish to proceed with the leave, shorten it, or cancel it

• document their choice

• ensure payroll arrangements reflect their decision

Importantly, the decision about whether to continue the leave should come from the employee, not the employer.

4. Avoid reactive policy changes

When legislation changes, businesses sometimes react by tightening policies or removing benefits.

However, attempting to restrict or remove parental leave entitlements after 7 November 2025 could expose the business to compliance risks.

In many cases, the safest approach is to focus on clarity and proper documentation, rather than restriction.

Why this matters beyond compliance

While the legal obligations are important, there is also a broader workplace impact.

How a business responds during difficult moments can shape workplace culture, employee trust, and reputation.

Employees remember how employers handle sensitive situations, particularly those involving family and loss.

Businesses that respond with clarity, compassion, and fairness often build stronger long-term relationships with their teams.

Summary

Baby Priya’s Law introduces an important change to the Fair Work Act, strengthening protections for employees who receive employer-funded paid parental leave.

From 7 November 2025, most employers cannot refuse or cancel that leave solely because of stillbirth or the death of a child.

For small and medium business owners, the practical priorities are straightforward:

• review employment contracts and parental leave policies

• ensure managers understand the change

• establish simple processes for handling sensitive situations

• ensure your documentation reflects current legal requirements

If you have not reviewed your parental leave arrangements recently, now is a good time to do so. A quick review today can prevent uncertainty or compliance issues later.

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