Yes it’s complicated.
The number of hours your child care centre are open could have an impact on your out of pocket child care costs. As usual, it depends on your unique circumstances, and it is worth the time to understand how it works.
The right outcome for you will depend on the number of childcare hours you need, the number of hours you get the subsidy for, and the hourly rate of your provider.
Working out what is best for your family now, and over time.
Childcare needs and costs change over time, and this is a challenge for families.
Also - the financial impact of childcare on your family budget will be specific to your situation, making it hard to compare with the plans and decisions of other families you know.
In this article we focus on the different offers from child care providers and look at how this can impact the amount of subsidy a family will receive.
It is important to highlight some contradictions - sometimes a childcare provider that is open for, and charges for more hours than you need, actually results in a higher amount of government support, or, a child care provider offering sessions of less hours than the maximum, can also result in a higher subsidy. It’s confusing - but given the substantial impact of child care costs of family budgets, very important.
NOTE: In the following discussion, we have changed the time period to be week by week - we believe this is easier than considering the examples in fortnightly blocks.
Step 1: Find out the hourly rate of your provider vs Govt rate
The Child Care Subsidy percentage is based on the hourly cost of child care. You can work out your provider’s hourly rate by dividing the day rate by the number of hours in a session. (We discuss an easy way to do this here).
The Government will pay a subsidy based on a percentage (which is based on your family income - see here).
The Government has a limit on the hourly cost of care that they will pay a subsidy on. This rate is currently set at $12.31 per hour.
If your provider charges more than this rate, you are not subsidised for this amount. As an example, if your child care provider is open 10 hours a day and charges $160, the hourly rate is $16. The amount over $12.31 will not be subsidised.
If your hourly rate is less than the cap, the subsidy applies to the lower rate. As an example, a child care provider is open for 11 hours and charges $110 per day, the hourly rate is $10. The Child Care Subsidy will apply to $10 per hour (not $12.31)
This is confusing - but important when looking at opportunities to maximise child care subsidies.
2 providers charge the same amount per day, one is open longer hours
Consider the following:
Activity test of 8-24 hours a week (or 1-3 days), means that Fred is entitled to 36 hours per week child care subsidy.
The family income of $180k, means the Child Care Subsidy Percentage is 50%
Fred’s parents want to choose between 2 local child care providers. They both charge $160 a day, and one is open for 10 hours, and the other for 11 hours. Their schedule makes it easy to fit in with the 10 hour day - so the number of hours is not an issue.
Fred will need childcare for 2 days per week - so their childcare hours will be fully subsidised either way (as they have up to 36 subsidy hours available to them).
In this case - the Centre open for 11 hours works out cheaper per day when taking into account the Child Care Subsidy.
The reason for this is as follows:
Remember that the day cost for each Centre is the same at $160 per day
The hourly rate for each Centre works out differently, but in each case is greater than the Hourly Rate Cap of $12.31 per hour.
The Government pays a subsidy based on Fred’s family Child Care Subsidy Percentage of 50%, up to the Hourly Rate Cap - so the Government pays $6.155 per hour. So:
For the 10 hour day the Government pays 10 x $6.155 = $61.55
For the 11 hour day, the Government pays 11 x $6.155 = $67.05
This means the out of pocket cost per day for Fred’s family is $92.95 for the longer hour centre, compared to $98.45 for the centre open for 10 hours.
2 providers charge the same amount per day, one is open longer hours
Consider the following:
Activity test of 24+ hours a week (or 3+ days), means that Fred is entitled to 50 hours per week child care subsidy.
The family income of $180k, means the Child Care Subsidy Percentage is 50%
Fred’s parents want to choose between 2 local child care providers. They both charge $110 a day, and one is open for 10 hours, and the other for 11 hours. Their schedule makes it easy to fit in with the 10 hour day - so the number of hours is not an issue.
Fred will need childcare for 5 days per week.
In this case, the Centre open for 10 hours works out cheaper.
The reason for this is as follows:
Remember that the day cost for each Centre is the same at $110 per day
The hourly rate for each Centre works out differently, but in each case is less than the Hourly Rate Cap of $12.31 per hour.
The Government pays a subsidy based on Fred’s family Child Care Subsidy Percentage of 50%, up to the Hourly Rate Cap - in this case, the hourly rate is different for each Centre
For the 10 hour day, the hourly rate charged is $11, the Government pays 10 x (50% of $11) = $55
For the 11 hour day, the hourly rate charged is $10, the Government pays 10 x (50% of $10) = $50
Also - for the 11 hour day Centre, because Fred only gets 50 hours per week subsidised care, and the Centre is open a total of 55 hours over a 5 day wee, Fred’s family need to pay an additional 5 hours of care with no subsidy - an extra $50 per week.
This means the out of pocket cost per day for Fred’s family is $60 for the longer hour centre, and $55 for the shorter hour centre. When taking into account the hours that are charged with no subsidy, the difference in out of pocket costs per week is $75.
What is the lesson here?
It’s not easy to get to the bottom of out of pocket child care costs - as a number of factors need to be taken into account. We can help!