Wages and earnings

Last updated: 
1 July 2020

This page explains what wages and earnings are, and how the wages and earnings you receive will affect your DVA income support pension (or social security age pension) and veteran payment under the income test.

What are wages and earnings?

Wages or earnings are the income received from any form of paid employment, including full time, permanent part-time, seasonal, contract or casual work and self-employment. This income includes normal wages and also overtime, penalty rates, incentive payments and other employment-related payments.

If you receive a gift or a non-cash benefit instead of money for work performed, the value of the gift or benefit is assessed in the same way as money received. This means that the money value of work-related benefits (such as a car, or assistance with health insurance payments) is calculated and then added to the cash amounts you receive.

If you sacrifice some of your earnings (for example, to increase your superannuation contributions), the sacrificed amounts are still assessed as part of your income. This is because the amounts have still been earned, even though they may not be received straight away.

How do wages and earnings affect my pension or payment?

Gross income from wages and earnings is counted for pension and payment purposes. Your gross income is the total amount you earn before tax and personal deductions are taken out.

If you receive allowances from your employer which are genuinely used to meet the costs of work-related expenses, such as the costs of travel or work clothing, these amounts are not assessed as being a part of your earnings.

Your wages and earnings from employment are added to any other sources of income you may have (such as deemed income on any financial assets) to calculate your total income.

You can earn a certain amount of income before your pension or payment is affected under the income test. This amount is known as the income free area. For single people, the income free area is currently $178.00 per fortnight. For couples, including illness-separated couples, the income free area is currently $316.00 per fortnight.

For income above these amounts, your fortnightly pension or payment will be reduced by 50 cents for each dollar of excess income (25 cents each for each member of a couple). This is called the income taper rate.

If you are over qualifying age you may be eligible to receive the work bonus.

Transitional rules

If you received pension before 20 September 2009 at less than the maximum rate, your pension may be paid under transitional rules*.

If you are paid under transitional rules, you will remain under the pre 20 September 2009 rules, until you are better off under the new rules. This means your pension will reduce at the rate of 40 cents in the dollar (or 20 cents each for couples).

*Note: Transitional rules do not apply to veteran payment.

What is the work bonus?

The work bonus** is an incentive to encourage older pensioners who are able to do so, to continue working. Under the work bonus rules, the first $300 of work bonus income earned per fortnight is excluded from the income test.

Example: A work bonus eligible pensioner receives wages of $600 per fortnight. When their income is calculated for the income test, the first $300 is disregarded, so the assessable wages income is the remaining $300.

Additionally a work bonus bank allows eligible pensioners to accrue any unused amounts of the $300 fortnightly exemption to a maximum of $7,800. Any credit in this 'bank' can then be used to offset employment income that would otherwise be assessable in the future.

**Note: Veteran payment recipients are not eligible for the work bonus.

Rate of income

As earnings from employment can vary considerably from week to week, your rate of income for pension or payment purposes may be calculated by averaging all your earnings over a period of time (usually three months). This allows your income to be properly assessed, while at the same time avoiding frequent small changes to your fortnightly pension or payment amount.

Regular work

If you are working on a regular basis, i.e. working the same number of hours each week or fortnight at the same hourly rate, then you should receive a regular and consistent income. Your gross fortnightly income will be used for pension or payment purposes. This will be the case regardless of whether you work full time or part time.

Irregular work

If your working hours or payment are irregular, i.e. you work different hours from week to week or fortnight to fortnight, or if your hourly rate varies, you will not receive a regular consistent income. For pension or payment purposes we usually take an average of your gross earnings for an appropriate period and use your rate of earnings during this period to calculate your pension or payment for the next period. The period used is generally three months (13 weeks or 7 fortnights) but may be different depending on your pattern of work. Every three months you should provide us with pay slips or other evidence of earnings for that period so we can reassess your pension. If you didn't receive the income you expected to receive, your pension or payment will then be adjusted based on your actual lower earnings over the three months.

Example: A person works in a casual job. Over a period of 13 weeks they receive the following amounts:

Week $
Week 1 120
Week 2 60
Week 3 80
Week 4 to 7 Nil
Week 8 50
Week 9 200
Week 10 150
Week 11 60
Week 12 70
Week 13 Nil
TOTAL 790
790 ÷ 13 = $60.77 per week or $121.54 per fortnight.

In this example we would use $121.54 per fortnight as the person's income from earnings to calculate the pension or payment rate for the next 13 weeks.

Seasonal and contract work

If you perform one-off seasonal or contract work for a period, and you will not be working again in the following 12 month period, the total gross amount you earned over the period will be regarded as your annual income from employment. The total gross amount earned is divided by 26 to give your fortnightly rate of earnings for pension or payment purposes. This rate of earnings will be used to calculate your pension or payment for 12 months from the time you commenced the employment.

If you perform seasonal or contract work more than once during the course of a year, your earnings will be assessed as for irregular work (see above).

Self employed

If you are self employed, your earnings are included in an assessment of your business. Generally your tax return will be used to calculate your real income for the previous 12 months, and that will form the basis of the calculation of your current income. Self employed income may be included as "work bonus" income.

Refer to The impact for partnerships and sole traders

One-off Employment

One-off employment is a short period of work which is not repeated. This includes single episodes of work such as being a Christmas Santa, a week's fruit picking, or employment at an Annual Show.

One-off earnings are usually averaged over the whole year. This means that your pension or payment is unlikely to be affected, as the amount is not assessed as being earned just within the payment fortnight it was received.

If additional periods of one-off employment are worked, this will then be assessed as irregular work and will be averaged over a shorter 13 week period.

Earnings under the Veterans' Vocational Rehabilitation Scheme (VVRS)

Income earned while participating in the VVRS may be subject to protection provisions. This means that earnings from employment may be disregarded while a person is participating in the VVRS. Protection provisions may apply to eligible veterans in receipt of an invalidity service pension. For further information, refer to Veterans' Vocational Rehabilitation Scheme.

Salary Sacrifice

Salary sacrifice is an arrangement by which an employee agrees to forego part of their salary or wages in return for their employer providing benefits of a similar value. When a portion of salary is sacrificed into a fringe benefit – the lease of a car, superannuation or other benefit – the fringe benefit is a valuable consideration and therefore the salary amount that is sacrificed in order to obtain it is not exempt from assessment as income.

There are two exceptions. These include the value of board or lodging provided by the employer or salary sacrificed to obtain additional leave.

Obligations

When you are granted an income support pension or payment and periodically after that, you will be notified of your obligations. You will be required to tell us within 14 days (or 28 days if you live overseas or receive remote area allowance) of changes to your circumstances that might affect the rate of income support or payment pension you receive, or your eligibility to receive that pension or payment. These obligations apply equally to trustees.

Where the change is a reduction in income it is recommended that you contact DVA as soon as possible as an increase is only effective from the date of notification.

In relation to wages and earnings, the sort of things you need to tell us about within 14 days (or 28 days if you live overseas or receive remote area allowance) are if:

  • you commence employment;
  • your current earnings increase or decrease; or
  • you became aware that your income had increased or decreased when you prepared your income tax return, or a profit and loss statement.

If you commence employment you would also need to tell us:

  • the date you began working
  • the gross amount you earn
  • the name of your employer
  • the value of any fringe benefits obtained through salary sacrifice.

If you stop working you would need to tell us:

  • the date you stopped working
  • if you received any lump sum payment, such as severance pay, or are to receive any pension or superannuation payment from your former employer.

You would not need to tell us of changes to your rate of earnings if:

  • you receive the reduced rate of pension or payment because of your income and the changes to your earnings plus any other income is less than $2.00 per fortnight if you are single, or $4.00 per fortnight if you are a member of a couple; or
  • you receive a reduced rate pension or payment because of your assets, and your income is well below the amount at which pension would reduce under the income test (this amount is quoted in our latest letter to you); or
  • you are receiving the maximum rate of pension or payment and the changes to your earnings plus any other income does not take you over the income free area by at least $2.00 per fortnight if you are single, or $4.00 per fortnight if you are a member of a couple.

When you advise the Department of your income from employment we will require you to provide verifiable details about the dates of your employment and gross rate of earnings by providing documents, such as employment contracts, pay slips and payment summaries.

Overpayments

Usually an overpayment of pension will not occur when you have met your obligations. However, sometimes even if you have met your obligations, an overpayment can occur because we have not been able to process the change before the next payday. We do our best to avoid this occurring, but it is not always possible. To provide you with your exact entitlement we are obliged to recover overpayments of pension where they do occur.