Work out exactly what a day’s work means for your family.
In this example, we look closely at Kate and Mary.
They are both partnered, and have 2 kids each. Both of them are now able to make the most of the recent changes meaning that their second child in care gets a higher subsidy - which is a great boost.
Each child is in childcare at the same day rate, and with the same number of session hours. We use the rate the government has been using in their examples - although cost and session hours can vary a lot.
The only difference between Kate and Mary is in the earnings of their partners.
Kate’s partner earns $105k per year, compared to Mary’s partner who earns $100k per year. And this leads to some interesting observations when looking at the impact of work on each families overall financial situation.
Both Mary and Kate are considering their work options, and the viability of the amount of days they are working when looking at the overall benefit to their family budget.
In this example Kate and Mary are considering the offer of a pay rate of $35 per hour - which is $280 for an 8 hour day, and an annual rate of $72,800.
For Mary and Kate, there is a lot to think about, as their overall household income is made up of many components - more than just income from their employer, and this change in income can result in unexpected changes.
Getting to the bottom of household income
Getting back to work is not just about child care costs, it’s about balancing and understanding a whole range of payments, rules, subsidies, taxes, rebates and more. For most families, the impact of a return to work is difficult to predict and often only understood in hindsight.
A useful way to look at the financial impact of a return to work is to measure the impact on the family budget based on a day’s income - which could be accompanied by a day’s childcare costs too.
Consider that changes in income impact many parts of the system - from child care subsidies, Family Tax Benefit payments, and of course tax and the Medicare Levy.
In the section below we look a bit more closely at the financial outcomes for Mary and Kate - and highlight how different they are based on one factor - a difference in the earnings of their partner.
A closer look at Kate’s situation.
At an hourly rate of $35, Kate’s employment income will be $280 per day - however she has a lot of numbers to crunch before she can work out just how much her work is helping the family budget.
Consider that taking into account the increase in family income from her first day’s work, her family loses the benefit of the Family Tax Benefit Part A payment.
Then consider that her child care subsidy % per day decreases based on higher income. Working Tuesday makes her child care costs for Monday a little higher.
If this sounds crazy complicated - it’s because it IS crazy complicated. It would be unusual to expect any family to understand the full impact of income on their household bottom line.
The result is that to work a 5th day, Kate’s household income will improve by just $74 out of the $280 earned that day. Put another way - out of the $35 per hour earned, Kate’s family will benefit at a rate of about $12.33 per hour.
In the chart above, the impact to household income is measured each day, taking into account child costs, changes to child care subsidy rates, loss of Family Tax Benefit payments and costs of tax and Medicare Levy.
A closer look at Mary’s situation
Consider again a starting day pay rate of $280.
Mary’s situation is quite different. This is because the family will lose the benefit of the Family Tax Benefit Part A payment if she works one day a week.
It’s quite a different situation to Kate.
Child Care Subsidy percentage reduces based on increases in family income, so each extra day worked (with an increase in overall family income) means the out-of-pocket child care costs go up.
If Mary was to work full time, the improvement to the family income from working 5 days (instead of 4) would be just $67.
In the chart above you will see the impact to Mary’s family budget is uneven over the days she works. Importantly, the impact of increased employment income and extra childcare costs, means Mary’s household budget may not be improved by her working as much as she expects.
We work for different reasons
This analysis is a purely financial view of work, and for different people the rewards and reasons to work are more than just financial.
Having said this - the overall outcome of working each day is very difficult to uncover, due to the complexity of government support payments, subsidies and the tax system.
For families - everyday cashflow is vital, and an understanding of the actual benefit of employment must surely be key to managing family budgets.
A few things to note:
This analysis comes to you after crunching through many government rules. All the information is public, and can be mapped out by checking with Centrelink and the Australian Tax Office.
In order to bring you these examples, we have made simplifications. As an example we do not take into account compulsory employer superannuation contributions.
This analysis of the financial decisions of working families is based on work completed by Australian Treasury and further expanded by the Grattan institute - you can find out more about the methodology here. What we have done, is build the software to allow you to understand your choices, based on your information, and we look forward to helping you make better decisions.
Finally - these examples are based on real people, but chosen to illustrate how different family situations can result in quite different financial outcomes. Any feedback on the examples chosen or ideas for more will be be much appreicated!
Brendan
0412 181 031