When a senior friend or family member starts losing the ability to undertake day-to-day tasks, it’s time to consider calling in specialist support. Senior caregivers can help with all kinds of activities, from preparing lunch to assisting with personal hygiene. Crucially, they also give you the peace of mind of knowing that your loved one is being well looked-after. A good care provider can be worth their weight in gold—so it’s worth making sure that you’re taking care of their needs, too. And handling their taxes properly is a key part of this!
One simple—yet vital—question
Once you’ve found the perfect senior caregiver for your loved one, you’ll doubtless want them to start work right away. But before they begin, there’s one thing you need to know: Are they a contractor or an employee? This simple question is absolutely vital—because you, as the person hiring the senior care provider, have to comply with different tax requirements in each case. But aren’t employees and contractors essentially the same thing? Absolutely not! There’s a set legal distinction between the two under Australian law. If you classify your senior caregiver wrongly, you’ll be left facing a fine of up to AU$ 16,500 per infraction. In other words, it pays—quite literally—to make sure you get the answer right.
Generally speaking, contractors have much more freedom in how they undertake their work than employees. Employees, for instance, aren’t permitted to delegate their work to others, whereas contractors are. This also goes hand-in-hand with greater responsibility for contractors: Contractors bear the legal risk for their work, whereas employees don’t. It’s a complex point of tax law—so make sure to check out the guidance from the Australian government to make sure you’re making the right call. And on the off chance that you’ve commissioned a care agency, rather than an individual, you don’t need to worry about this distinction at all: Simply pay the invoices they issue you and they’ll handle everything else.
If you’ve determined that your senior care provider is an employee, keep on reading. If they’re a contractor, skip straight to the relevant section.
If your senior caregiver is an employee…
So, you’ve worked out that your senior caregiver is classed as an employee for tax purposes. Now, it’s time to get to grips with their taxes!Here’s what you need to do, when.
Before your senior caregiver starts work
If your senior caregiver is an employee, you’ll need to “withhold” certain taxes from their payslip. In other words, you deduct tax on their behalf and pay it directly to the Australian government. But before you can start doing this, there’s a bit of paperwork to get out of the way:
1. Register for “PAYG withholding”
PAYG, or “pay-as-you-go”, does what it says on the tin: It enables you to handle taxes on an ongoing basis (e.g. deducting them from each salary payment) on your employee’s behalf. It’s quick and easy to set up your PAYG account online—but you need to do it before your employee starts work. In most cases, you’ll have to withhold tax from your employee’s payslip, but there are a small number of exceptions to be aware of.
2. Get the information you need from your employee
It goes without saying that you should ask your new senior caregiver for their bank details so you can pay them their salary. You’ll need some specific tax-related info from them, too. Ask them to complete a “tax file number declaration”: This will give you a “tax file number” (“TFN”) so you know how much tax you’ll need to deduct from each payslip.
3. Sort out their super
Superannuation (or “super” for short) refers to the pension payments made by employers in Australia. It currently amounts to 10.5% of an employee’s salary, but employers don’t always have to pay it. It’s only mandatory for domestic employees (which includes most senior caregivers) if they work more than 30 hours a week, for instance. Your employee is free to choose which super fund they opt for—but it’s your job to give them the relevant form so they can do so. Don’t forget to share their TFN with their super fund, too!
4. Set up single-touch payroll
Sounds like a lot of paperwork? Well, the Australian government agrees—which is why it’s now made STP (single-touch payroll) mandatory for all employers. This ensures the tax office has all the information it needs, without employers needing to submit tons of forms each year. Make sure to choose your preferred software solution and get your STP set up before your senior caregiver starts work so their payslips can be processed smoothly.
Once your senior caregiver has started work
1. Pay their wages and withhold tax
Make sure you pay your employee’s wages at the intervals agreed in their contract. Don’t forget to withhold the relevant amount of PAYG income tax from each payslip, either: The Australian government has a calculator to help you figure out how much this should be. The frequency with which you report and transfer this tax to the government depends on the sum in question: If you withhold amounts of AU$ 25,000 or less each year, you’ll need to transfer the withheld money quarterly, for instance.
2. Pay their super contributions
Each quarter, calculate the amount of super your employee is due. Your STP software may well do this for you. Once you know how much to pay, you can transfer this sum easily using the SuperStream online tool from the Australian government. Incidentally, the super payments you make for your employee are tax-deductible—so don’t forget to include them on your own tax return!
3. Check if you need to pay other taxes
Depending on your specific situation, you might need to pay certain other taxes, such as fringe benefits tax, at periodic intervals. This comes into play if you provide your senior caregiver with things called “fringe benefits”, such as free car parking. If you suspect this might apply to you, the Australian government has all the information you need.
4. Finalise everything annually
At the end of each tax year, you need to complete a “finalisation declaration”. Using STP makes this much easier than it sounds: Your software will walk you through the necessary steps, with no need to manually draw up an annual summary. Once you’ve finalised everything, your employee will be automatically able to access the information they need for their own tax return. Just remember to complete the finalisation process through STP by 14 July each year!
If your senior caregiver is a contractor…
If you’ve hired your senior caregiver as a contractor, this makes things more straightforward from a tax perspective: You don’t need to worry about PAYG tax, STP or even fringe benefits tax. However, they might nevertheless be due superannuation. That’s because an exemption in the superannuation rules means that contractors are still eligible for super if they meet the 30-hour threshold, because their work primarily revolves around their personal labour. If this applies to your senior caregiver, make sure to get their TFN, ask them to choose their super fund and submit their super contributions quarterly—just like for an employee.
A lot to take in? Here’s an overview
Dealing with taxes for your new senior caregiver can seem like a daunting task—but not if you take it step by step. Here are four key things for you to remember:
- Make payments to your caregiver at the agreed times (and deduct PAYG income tax if they’re an employee)
- Pay super quarterly, if they’re eligible, and transfer any withheld tax to the government at the relevant intervals
- Send off your finalisation declaration annually, if they’re an employee
- Keep your records for at least five years so you can refer to them in case of any issues
As you can see, sorting out the tax situation for your senior caregiver is an ongoing endeavour, with various tasks to be completed as time goes on. It’s important to stay on the ball—we’d recommend bookmarking this page so you can refer to it throughout the year!