Starting a new job is always exciting—especially if it’s one as rewarding as providing personal care for an older person. But starting a new job always goes hand-in-hand with a bit of admin, too, and aged care positions are no different! Investing a little time in sorting out your taxes and payroll at the start will let you focus your energy on looking after the person you’re caring for. To give you a helping hand, we’ve put together a step-by-step guide so you know exactly what needs to be done, when.
The crux: Are you an employee or a contractor?
In Australia, the way you deal with your taxes depends on whether you’re an “employee” or a “contractor”. But what’s the difference? If you’re an employee, your employer will either provide you with the tools and resources you need to perform your work as an aged care worker or reimburse you for them, for instance. Conversely, if you’re a contractor, you have to buy your tools and resources at your own expense. Another example: If you’re an employee, you’re obliged to work when your employer requests this of you, whereas if you’re a contractor, you’re free to accept or refuse work as you see fit.
Your contract with the person you’re providing care for (or their family, say) might set out which category you fall into. If not, the Australian government has a handy online checklist to help you figure it out. The answer to this question has a knock-on effect on how you handle your tax, so it’s crucial that you get it right—not to mention the fact that, if your employer has incorrectly classified you, they’re breaking the law and could face a hefty fine.
Whether you’re an employee or a contractor, there are three things to have on your radar when it comes to taxes and payroll. First off, there’s income tax, which is charged at a staggered rate depending on your income. Then, there’s superannuation (usually just called “super”). This is money that goes towards your pension pot, or, in other words, to cover your living expenses once you’ve retired from work. Finally, there’s the Medicare levy, which funds some of Australia’s public healthcare system. While not strictly a tax, it’s still calculated on the basis of your income and finalised via your tax return, so it functions in much the same way at your end. However, these three aspects are handled differently for employees and contractors—so make sure you skip to the relevant section below to get all the information that applies to you!
So, you’re an employee?
Fantastic: If you’re employed as an aged care worker, you have a legal entitlement to protections such as a minimum rate of pay, annual leave, and sick pay. That said, there’s a bit of paperwork to get out of the way before you start:
- Make things easy for yourself by using the Australian government’s online portal myGov for the below tasks—just register for an account and link it to the Australian Taxation Office (ATO)’s digital services.
- Apply for a tax file number (TFN) and provide this to your employer. This helps the Australian government allocate your tax correctly—you’ll end up paying more tax without one!
- Complete a tax file declaration (TFD). This tells your employer how much tax to deduct from each payslip.
- Choose a superannuation fund so your employer knows where to pay your pension contributions (if you’re eligible—as aged care workers who work in a private home are usually classed as domestic employees, this depends on whether you work more than 30 hours a week).
Your employer handles most of the admin once the initial paperwork has been completed, so you can focus on providing top-quality care! Under a scheme called pay-as-you-go (PAYG), they’ll withhold a certain amount from each paycheque for your income tax. Wondering how much this’ll be? The Australian government has put together some quick-reference tables to give you an idea. Don’t forget that the first AU$18,200 is usually tax-free! You’ll also usually have a PAYG deduction for your Medicare levy. Specifically, this is 2% of your taxable earnings above the threshold of AU$29,207 and a staggered reduced rate below this. Finally, if you’re eligible, your employer will pay a sum equivalent to 10.5% or more of your earnings to your super fund each month, too—although this sum is on top of your salary, rather than deducted from it.
Each year, your employer will provide you with an annual statement so you can see how much they’ve paid you and how much they’ve deducted via PAYG over the past 12 months. To make sure you’ve paid enough tax (and not paid too much!), you’ll generally have to lodge a tax return. The deadline for this is 31 October every year. As your employer has already deducted estimated sums for your income tax and the Medicare levy through PAYG, the government will simply check to make sure these deductions align with the amount you actually need to pay. If you’ve not paid enough, they’ll ask you to make up any shortfall, and if you’ve paid too much, they’ll send you a refund. Plus, you can offset certain work-related expenses from your taxable income—just don’t forget to keep your receipts!
So, you’re a contractor?
Brilliant: As a contractor working in the aged care field, you’re quite literally your own boss, with all the power and freedom that entails. But with great power comes great responsibility—especially in terms of your taxes! If you’re a contractor, you’ve also got some paperwork to complete before you get started:
- Decide what business structure works best for you. As a caregiver providing aged care services, you might find that being a “sole trader” (or, in other words, someone who owns and runs their business as an individual) is your best bet.
- Check to make sure your business name hasn’t already been taken.
- Register your business and get an Australian business number (ABN). You need this so you can lawfully operate as a business within Australia.
- Once you’ve got your ABN, you can register for your myGovID and RAM. This lets you deal with all your tax affairs online.
Unlike an employee, who automatically gets paid a set amount via payroll, you’ll need to generate invoices for the people you’re caring for (or their families) so they know how much to pay you and by when. As they won’t generally be handling PAYG deductions for you, you’ll have to actively set aside some money so you can pay your tax bill at the end of the year. Not sure how much you’ll need? The Australian government has put together a calculator to give you a rough idea. Don’t forget to include the Medicare levy in your calculations—that’s 2% of your taxable income above AU$29,207, and a smaller percentage (right down to zero) below this figure.
Like an employee, though, you need to lodge a tax return every year by 31 October. Once you’ve done this, the ATO will calculate how much you owe—with payment due just a few weeks later! Luckily for you, there’s something called “PSI”, whichwill probably reduce your tax bill a little. You’re likely to be earning PSI, or “personal services income”, if you’re an aged care worker working as a contractor, because the majority of your income comes from your work as an individual. If this applies to you, there’s a whole host of deductions you can offset against your tax bill, such as bank fees and public liability insurance—the Australian government has put together a comprehensive list. Whether or not you’re classed as earning PSI, you can also deduct other expenses, just like employees can.
As you can see, there’s a fair bit of paperwork that goes into dealing with your taxes as a contractor. So you’ll be pleased to know that, as an aged care worker whose services primarily revolve around their labour, the people who hire you generally have to take care of your super contributions. You’ll be able to choose whichever super fund you like, with 10.5% of your “ordinary time earnings”, or, in layman’s terms, the labour part of your fees, being paid into your pension pot.
Ready to start work?
As you can see, the way in which you handle your taxes and payroll is very different depending on whether you’re an employee or a contractor. When you start a new position as a caregiver providing aged care services to an older person, it’s crucial to determine which category you fall into (and to seek professional advice if things aren’t clear). Whether you’re an employee or a contractor, though, don’t forget to submit your tax return by 31 October each year—and to keep receipts for all your work-related expenses so you can offset those all-important deductions!