When you sign your employment contract, the pay you usually agree to is a yearly salary. But how do you know how much this will be when the money actually lands in your account each week, fortnight or month?
Estimate your take home pay
Your take home pay will depend mainly on 3 things:
- Your pay cycle
- The amount of tax you pay
- Money paid by your employer into your super fund
There are some calculators available online to help you estimate what your take home pay will look like, but you can try to work it out by following a few steps:
- Start with your annual salary
- Subtract the annual amount of tax you’ll pay (see relevant section below)
- Subtract any money paid into super that’s counted within your gross pay
- Subtract any additional levies you might need to pay, such as HELP debt (interest-free loans from the government under the Higher Education Loan Programme [HELP] which replaced the Higher Education Contribution Scheme [HECS])
- Divide this by your pay cycle, depending on whether you’re paid weekly, fortnightly or monthly
- Pay period: Dates/time period your payslip refers to
- Pay cycle: This is how frequently you get paid. There’s no standard pay cycle. It differs from company to company.
- Total ordinary hours: Relates to the working hours you agreed to in your contract e.g. full-time tends to be 37.5 - 40 hours a week
- Overtime: You may get paid for working overtime, but don’t count on it. Check your contract to make sure.
- Gross pay (before tax): Amount you’ve earned before deductions are taken out
- Net pay (after tax) Amount that’s paid into your bank account once deductions (including HELP) are taken out. Often called ‘take home pay’
- PAYG: Pay-as-you-go (PAYG) tax is withheld every time you’re paid.
Australia has a tax-free threshold, which means that you can earn up to a certain amount of yearly income without paying tax.
You’ll only claim the tax-free threshold from your primary job (the one that earns the most).
After that, for each dollar you earn in a certain bracket, you pay a portion to the government in income tax. These brackets and rates can change over time, so the best place to check for up-to-date information is the ATO’s Individual Income Tax Rates page.
You can get an estimate of how much tax you’ll pay each year with the ATO’s simple tax calculator.
A Medicare levy is applied unless your income is below a certain amount.
If you earn above a certain amount and don’t have private health insurance, you’ll have to pay a Medicare Levy Surcharge.
Got a HELP debt? If you earn over a certain amount, you’ll see a percentage of your pay diverted back to the government, which goes towards paying off your debt.
Super: Your employer must pay a percentage of your ordinary hours’ earnings into your super account – this is called a super guarantee. You can check the most up-to-date information on super guarantee rates at the ATO’s website.
It’s important to note that each employment contract is different, so it’s worth knowing when you're negotiating whether payments by your employer to your super are counted as part of your package, or whether super is paid on top of the dollar figure quoted in your contract.
- If your super is paid as part of your gross salary, then if compulsory super contributions rise in the coming year, you may see your take home pay impacted. It’s worth considering this when you’re negotiating your starting salary
- Check your super contributions are actually going into your super fund account. Don’t assume they are just because your payslip says so.
Negotiating your pay?
Once you’ve been in your role for a while, you may have a pay review. In this instance, it’s worth calculating ahead of time what a 3% or 5% rise will look like to your take home pay, for instance, so you can get a real feel for what’s on the table.
Most workers in Australia get 4 weeks’ annual leave, as well as public holidays, but it really does depend on your contract and your ordinary hours of work. Double-check what you signed.
You’ll probably see the number of hours or days of leave you’ve accrued, and used, on your payslip.
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