Many doctors and medical professionals work long hours and are often required to be on call. For those doctors who are also parents, this can result in the need to hire a nanny to care for their children. There are a number of issues to consider when hiring a nanny. If nannies are not treated correctly for tax purposes, there is the potential for exposure to significant costs and possibly legal action. So what are your obligations in relation to hiring a nanny?
Contractor or Employee?
To help understand what is required of you, it is first important to determine if the nanny is a contractor or an employee.
Under Australian Taxation Office (ATO) guidelines there are a number of important factors that determine whether a worker is considered to be an employee or a contractor for tax and superannuation purposes.
The first determining factor is the worker’s ability to subcontract or delegate. If the worker can’t pay someone else to do the work, this indicates they are more likely to be an employee. A nanny’s role is not immediately replaceable as the hiring process is often rigorous and involves many steps and checks to ensure children are in safe hands. In this situation, a nanny would be considered an employee.
The next factor to consider is the basis on which payment is made. If the worker is being paid for their time worked or activity then they are likely to be an employee. However, if the worker is paid for a result achieved based on a quote they provided, then this may constitute them being a contractor. As nannies predominantly are paid for the hours they work therefore may more lead to being an employee under this basis.
The final factor we will discuss is control over the work performed. If the business or person hiring the worker has the right to direct the way the worker does their work then they are likely to be an employee. If the worker has freedom over the work they perform and is only subject to the specific terms in any contract or agreement then they would be considered a contractor. Nannies have minimal control as a routine is generally set by the parents of the children under the nanny’s care. The nanny in this case may be considered an employee.
It’s important to note that nannies often advise families that they have an ABN and can be paid as a contractor, however, this does not mean you are obligated to pay the nanny in this manner.
As a general rule a nanny will be considered a contractor if provided through an agency whilst nannies paid directly by a family are more likely to be employees.
What are your obligations if your nanny is an employee?
Pay as you go (PAYG) Withholding
If your nanny is an employee, you are required to register for PAYG Withholding and calculate tax to withhold from each pay.
A doctor in private practice should already hold an Australian Business Number (ABN) and may already be registered for PAYG Withholding. If not already registered, they will be able to register for PAYG Withholding with the ATO.
However, if you are a hospital employee and not in private practice, you are not entitled to an ABN as you are not carrying on an enterprise. Instead, you will need to register for a Withholder Payer Number (WPN) with the ATO to enable you to report the nanny’s wages on an Instalment Activity Statement (IAS).
Superannuation guarantee
If a nanny is required to work 30 hours or more per week and is paid $450 or more (before tax) in a calendar month, they are entitled to the superannuation guarantee. The requirement to work 30 hours in a week is an additional requirement domestic workers must satisfy in order to be entitled to superannuation. Superannuation of 9.5% of gross wages is required to be paid to the nanny’s nominated superannuation fund. Superannuation is paid on all hours worked, not just the excess over 30 hours.
Other payroll obligations
Single Touch Payroll (STP) is the ATO’s new reporting requirement for your employee’s tax and super information. Every time you pay your employees you are required to send your employee’s pay information to the ATO though payroll software. Please note that if you have a WPN, you are exempt from STP until 1 July 2021.
There are a number of different leave entitlements that need to be considered if you have an employee, the most common being annual leave and personal leave.
An employee (other than casual employees) accumulates four weeks of paid annual leave for each year of their service with the employer. Annual leave accumulates based on the number of ordinary hours a nanny works including any paid annual leave or paid personal/carer’s leave.
WorkCover
Finally, often forgotten in the employment process is the requirement to hold insurance with WorkCover. As nannies are domestic employees, they must be covered under a separate WorkCover insurance policy than the employees working in your business. Taking out a Household Workers’ Insurance policy helps ensure coverage against potential compensation costs if the nanny were to injure themselves while working. In Queensland, these premiums are currently inexpensive at less than $100 for a two year term.
What are your obligations if your nanny is a contractor?
Pay as you go (PAYG) Withholding
If the nanny does not provide you with their ABN, you will generally be required to withhold 47% from payments.
Superannuation guarantee
Even if your nanny is a contractor you are probably still liable to pay their superannuation. According to the ATO, if a contractor is paid wholly or principally for labour, they are considered an employee for superannuation purposes and are therefore entitled to superannuation guarantee contributions under the same rules as employees.
Contact us
If you need help determining the correct taxation requirements and obligations regarding correctly paying your nanny, please contact Kristy Baxter or Angela Stavropoulos on taxmed@pilotpartners.com.au or 07 3023 1300.