Being a contractor nanny can be confusing.
Opting to be a contractor nanny means that you work under an ABN, invoice your family for hours worked, and manage your own employment. This means you’re paying yourself, contributing to your super, covering yourself with insurance, and paying your own tax. Nannies that operate under an ABN by definition work for multiple families and see a few streams of income over the year.
If you are a contractor nanny that works exclusively for 1 – 2 families or an agency, you should be employed. Too often we see nannies on ABN when they are entitled to employment, many of which are on much less per hour once they take away the expenses that come with being a self-employed nanny. If you’re a contractor nanny in this situation and want to discuss employment options, please get in touch with the NannyPay team. We can support you to move to a more suitable model, even if it’s not with us.
1: Plan when your final invoices go out and when they’ll be paid.
Your tax is calculated based on all income that lands in your account before June 30 so it’s important to put some strategy around when the final invoices go out and when they need to be paid. For example, if you were to send them all out on June 30, they may not be paid until the new financial year which means they don’t count towards this year’s taxable income. Talk to the ATO or your accountant to get an idea of your income and tax owed. Alternatively you can use the ATO tax brackets to get an estimate on the tax you’ll owe at the end of the year (don’t forget to calculate any tax you may have already paid throughout the year if you’re set up to do that). Understanding these numbers will help you manage when to send out your final invoices.
2: Prepare your expenses and how you could improve financial management for the new year
The good news for contractor nannies is that you get to claim a lot more which means your taxable income is lowered for work related expenses (talk to the ATO or your accountant to find out exactly what you can claim). We often come across nannies who manually manage receipts and expenses. If there isn’t much to claim or invoice that might work but we encourage you to consider moving to digital management. If you are operating with more families, expenses and role changes, consider if an accounting software might be right for you.
3: Apply some strategy to your numbers and budget
EOFY can be stressful for a contractor nanny if there are some unforeseen tax bills or operating expenses. When you first sit down with a family and negotiate, you may not have the full picture of what the rate actually means for you. Sometimes this can be disheartening once you see what you’re truly on per hour (some nannies find they are on below minimum wage) but EOFY is the perfect time to ask for pay rise. Working out the numbers will help you plan for the costs for self employment and extra to cover your own sick days and holiday leave. Remember, you’re saving your family time, headaches and money if they had to manage your employment.
Negotiating a new rate can be daunting and intimidating. We recommend reaching out to Amanda from Nanny of Oz if you need support on how to communicate and negotiate effectively to your family. There is no shame in feeling nervous! You’re representing yourself often with very powerful people but don’t let that deter you from asking your worth.
4: Invest in an accountant
Operating as a contractor nanny is not as as simple as being employed. If this is your first year of operation you will have a tax bill approaching but the ATO will also set up contributions for the new financial year that are forecasted of this year’s income (I know, confusing right?). Most nannies aren’t aware of this and get a shock when the tax bills keep coming in the new financial year. Understanding how these tax lodgements work and what you can and cannot claim is a lot more effective with an accountant. While they come at a cost you will likely save yourself hours of work and headaches from mistakes (and accountant’s are tax deductible).
5: Don’t forget about your Super
So often contractor nannies neglect paying their super. While the extra 10% in your pocket might feel good each payday, regular super contributions are essential for your future financial security. Once you get an idea of your income and tax owed, consider making a tax deductible contribution to your superannuation. Or, if your income is low make an after tax contribution for a Government co-contribution. The best way to understand the ideal way to contribute around tax time is to consult your accountant.