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NEWS - PLANNING
Going part-time
10/22/2001
Employees who are made redundant or forced into early retirement often have no choice but to opt for part-time work. For a growing number of employees, this may be a situation they face sooner rather than later, as employers respond to a slowing and uncertain economy and seek ways to cut costs.
But thousands of others from senior executive ranks on down are deliberately looking for ways to cut back their working hours and introduce some balance into their lives. Health problems, or the threat of divorce from a long- suffering partner, can often trigger the shift to part-time work. But you don't need a scare like that to make it happen.
If you want to spend more time with your family, ease into retirement, work beyond normal retirement age, widen your skills, pursue studies or hobbies you've never had time for or simply slow down your pace of life, part-time work could be the answer. Even if it is something forced on you, there are ways to make it work in your favour.
"The thing that people who have made the transition to part-time work like is that they have simplified their life," says Carol Davis, managing director of Carol Davis and Associates. "Life has got too complex, it has got too hard, and we just want to make it simpler. Some people are actually doing it. They are saying, 'I might have had more money and luxury items, but in terms of quality of life, I have more time for my family, I have more time with myself, and I am happier'.
Phil Ruthven, chairman of IBISWorld, says part-time work is often the perfect compromise for people who don't want full-time work or full-time leisure. "It's all about getting that balance right," he says.
Part-time workers were virtually non-existent in 1901, and made up about 10 per cent of the workforce halfway through the last century.
But in the 20 years from 1973 to 1993, part-time work really took off, particularly among married women wanting to combine work and family responsibilities.
Figures supplied by the Australian Bureau of Statistics show that in 1973, 12 per cent of all workers were part-time; by 1983, the proportion had reached 17 per cent; and in 1993 it was 24 per cent.
Today, about 27 per cent of Australia's workforce is part-time, Ruthven says, and a quarter of unemployed people have a preference for part-time work. "A number of existing full-time workers would also prefer a part-time job, either because of age, or any other number of factors. It usually comes down to lifestyle. I think the western world is heading for a mix of 60 [full-time]/40 [part-time] over the next couple of decades."
The Netherlands has already reached a mix of 67 per cent full-time and 33 per cent part-time, he says.
Ruthven says dual-income couples in particular are often willing and able to have one partner working full-time, and the other part-time, particularly when kids are involved. Either partner could say, 'I'm happy with half'.
But if you take the time to plan and structure it properly, cutting your working hours in half need not mean cutting your standard of living in half.
In fact, people who become part-time, self-employed consultants and start charging an hourly rate, can end up better off, says Peter Thornhill, a principal of Motivated Money. "If they step into an area that is a core competency of theirs, they discover they can work less and earn more or the same," he says.
But there are still downsides, says Nigel Stewart, managing director of Stewart Partners. "We have seen several cases in recent years of full-time employees earning close to their previous after-tax income by changing status and consulting at high hourly rates and, where possible, income splitting," he says. "But the downside is the unpredictability of income and the absence of employee benefits."
For those shifting from full-time to part-time status as an employee, a cut in pay is hard to avoid, Thornhill says. The move might also threaten your career prospects, particularly if you're still establishing that career.
"It's very difficult to say to your boss, 'I would just like to work 20 hours a week from now on', because the perception is, the boss will mark my card and that's the end of my career," he says. "But if you have skills that are in demand, it can work."
Becoming a part-time employee usually means less pay and fewer benefits, such as superannuation, annual leave and sick leave.
But it can also mean fewer work-related expenses and a cut in the average rate of tax, says John D'Alessandri, a principal of Mercer Financial Planning.
For example, someone earning taxable income of $100,000 a year has an average tax rate of about 36 per cent (including Medicare levy), while someone earning $50,000 a year has an average tax rate of 24 per cent.
(Individuals pay different rates of tax on different bands of taxable income. Your average tax rate is your total tax liability, divided by your taxable income, and multiplied by 100.)
For this reason, it might make sense for two partners to work part-time, rather than one partner working full-time, D'Alessandri says.
If one partner earns $70,000 and the other nothing, the couple's after-tax income is $48,670, and the average tax rate is 30 per cent. But if each partner earns $35,000, the couple's combined after-tax income climbs to $55,190, because each has an average tax rate of only 21 per cent.
"It's not what people earn, but what is left over after tax and expenses that counts," D'Alessandri says.
Whether you're thinking of becoming a part-time employee, or a part-time self-employed person, you need to be sure someone would rather employ you part-time than not at all.
"The key is, you have to be relevant, because the choice you are talking about only applies to people who have some relevance," Thornhill says. "The reason most people don't do it, much as they would love to, is because if they left the job they were in and walked into the street to put their hand up to say they were for hire, they would be met by a deafening silence."
Apart from relevance, people shifting to part-time work usually need some money behind them as well. "A lot of people have made a lot of money and can afford to do it," Thornhill says.
For people in their 30s and 40s, the potential damage to their lifestyle, not to mention their career, can make the move too risky, he says. "It depends a lot on what you have done in the early years. But the financial risks are too great for a lot of people at that stage."
Davis says a desire for success and achievement - both in work and play - also keeps many of these people in full-time work.
"But at some point, they reach a stage when they are comfortable with who they are and start looking for inner values, rather than external rewards," she says.
People in their 50s often choose to "downshift" their career to a more manageable level. "It tends to happen at a stage when the financial pressures have eased."
Jim Clegg, a principal consultant at the Berkley Group, says clients of his who have made the move to part-time work are often in their late 40s or early 50s and set up for retirement.
Going part-time earlier than that can make it very difficult to accumulate enough funds for retirement, he says.
If, however, you felt confident of coming into some money - by way of a decent inheritance, for example - the decision would be a lot easier.
Making money through company options is another way of getting ahead at an early age, Stewart says."We have had people in their late 30s who have decided to throw it in and just sit on a number of boards, having amassed $10million, often through options."
If a windfall gain is not on the cards, then it's important to start saving early on in your working life if you intend going part-time later on, Stewart says. "If you're looking at reducing your working involvement, you have to start early at building assets outside superannuation.
"If you have been salary sacrificing to super, and go part-time at 45, you still have to wait another 10 years to access that."
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