How Does Live-Out Allowance Work for Domestic Helpers? A Complete Guide

Hiring domestic helpers on a live-out basis is becoming increasingly common in many parts of the world. But how exactly does the live-out allowance work? What are the key considerations for employers and helpers when it comes to this arrangement?

In this comprehensive guide we’ll break down everything you need to know about live-out allowance including the pros and cons, standard rates, factors that affect the allowance amount, tax implications and more.

What is Live-Out Allowance?

A live-out allowance is a payment provided to a domestic helper who does not reside in the employer’s home. It is given to cover the costs of the helper’s transportation, food and housing expenses.

Some key things to know

It is a separate payment from the helper’s monthly salary.
The allowance amount is on top of the basic salary.
It may be paid daily, weekly or monthly.
The amount varies based on local regulations and norms.
It applies to full-time and part-time arrangements.

Overall, the live-out allowance provides compensation for the helper’s living expenses since they do not live at the employer’s residence.

Pros and Cons of Live-Out Allowance

Here are some key advantages and disadvantages of the live-out allowance system:

Pros

Provides helpers greater independence and privacy.
Avoids cross-cultural challenges from living together.
Gives employers more family privacy.
Eliminates helper accommodation costs for employers.

Cons

Can be more costly for employers than live-in arrangements.
Makes it harder to monitor the helper’s work.
Reduces helpers’ job security compared to live-in.
Requires the helper to arrange their own housing.

The live-out allowance ultimately provides more freedom but requires careful planning.

Typical Live-Out Allowance Rates

Live-out allowance rates vary significantly across different countries and cities. But there are some general benchmarks:

In Hong Kong, rates range from HK$5,000-8,000 per month.
In Singapore, the norm is around S$700 per month.
In New York City, rates can range from $400-800 per month.
In London, average rates are £800-1000 per month.
In Dubai, rates span AED 1500-2500 per month.

Employers should research the typical live-out rates in their specific location.

Key Factors That Determine the Allowance Amount

Several important factors impact the live-out allowance amount:

Cost of living – Allowance needs to cover basic expenses in the city.
Transportation costs – Accounts for commute to employer’s home.
Meals per day – If any meals are provided at work.
Working hours – Impacts helper’s transportation and meals.
Overtime – More hours may warrant higher allowance.
Local labor regulations – Some locations have minimum pay standards.
Helper experience – More experienced helpers may expect higher rates.

Understanding these dynamics allows setting fair live-out rates.

Impact of Number of Working Days on Allowance

The number of days the domestic helper works each week also affects the live-out allowance:

Full-time – Standard full-time help warrants a full monthly allowance.
Part-time – Prorated allowance based on days worked.
Overtime – Additional allowance provided for extra hours.
Irregular schedule – Allowance adjusted up or down depending on weekly schedule variation.

The allowance structure should align proportionally with the helper’s expected working time.

Tax Treatment of Live-Out Allowances

The tax implications of live-out allowances vary by jurisdiction. Some key factors:

In some areas, allowances are tax-free for the domestic helper.
In other places, allowances are considered taxable income.
There may be reporting requirements for employers providing allowances.
Eligibility for pre-tax benefits deductions from allowances.
Any required payroll taxes, social security contributions required on allowances.

Thoroughly research the tax treatment of live-out allowances in your jurisdiction.

Impact of Number of Working Days on Allowance Taxation

The number of working days also affects tax treatment:

Full-time – Typically full applicable taxes.
Part-time – Prorated tax obligations.
Occasional – May qualify for tax exemption below certain earning thresholds.
Overtime – Usually results in higher tax liability.

Understand how tax rules apply based on the scope and frequency of employment. Consult an accountant on tax planning.

Structuring the Live-Out Allowance Payment System

Employers have flexibility in configuring allowance payment arrangements:

Monthly – One monthly sum to the helper.
Weekly – A smaller weekly allowance payment.
Daily – Allowance dispersed on a daily basis.
Reimbursement – Helper pays up front, employer reimburses.
Hybrid – Combination of set payment plus reimbursement.

Choose a system aligned with the employer’s cash flow and accounting needs.

Key Allowance Considerations for Part-Time Arrangements

For part-time helpers, the allowance structure requires special attention:

Pro-rate the allowance to align with average weekly hours.
Factor in work hour variability week-to-week.
Consider providing an occasional full allowance as a bonus.
Reimburse ad hoc extra costs like late transportation.
For live-in/live-out hybrids, blend the allowance and accommodation.

Adjusting the allowance for part-time work helps attract quality helpers.

Typical Items Covered by the Live-Out Allowance

The live-out allowance is designed to cover basic daily living expenses:

Housing rental costs or mortgage payments
Utilities like electricity, gas, water
Food and grocery costs
Transportation to and from workplace
Mobile phone costs
Basic medical insurance

The allowance provides for these staple costs associated with living independently.

Additional Benefits Beyond the Allowance

While the allowance covers basic expenses, employers can provide extra benefits:

Bonuses for performance or longevity
Paid time off
Contributions to retirement savings
Educational development & training
Healthcare plan contributions
Festive gifts like year-end bonus

These perks help attract and retain quality live-out helpers.

Allowance Considerations When Helper Uses Own Car

If the domestic helper commutes using their own vehicle, factor in:

Mileage reimbursement for work trips
Compensation for parking fees
Car maintenance allowance
Insurance reimbursement if required to use car for job
Gas allowance for work-related driving

Account for work-related automobile expenses in the allowance.

Key Considerations When Hiring a Foreign Domestic Helper

For foreign hires, additional factors influence the allowance:

Minimum salary requirements for foreign domestic workers in the country.
Standard of living adjustment coming from abroad.
Potential higher agency fees paid by the worker to secure the job.
Higher transportation costs from farther home locations.
Medical insurance costs may be higher without local coverage.

Adjust allowances to account for foreign worker circumstances.

Main Steps for Setting Up the Live-Out Allowance

When establishing a live-out allowance, follow these key steps:

Research typical live-out rates in your city.
Discuss needs and expectations with the helper.
Factor in number of workdays and scope of duties.
Calculate costs of daily commute and meals.
Review tax planning considerations.
Finalize allowance rate aligned with job details.
Formalize allowance in written employment contract.
Set up recurring payment system.
Review annually and adjust as needed.

Following these steps helps institute fair, compliant live-out allowances.

Key Items to Include in a Live-Out Allowance Employment Contract

The employment contract should outline:

Agreed upon monthly or weekly live-out allowance amount
Payment frequency (monthly, bi-weekly, etc)
List of expenses the allowance is expected to cover
Expectations for allowance if part-time or irregular schedule
Overtime allowance rate if applicable
Mileage and expense reimbursement policy
Tax withholding and reporting responsibilities
Process and notice period for changing allowance

Putting policies in writing avoids future confusion.

Changes to Live-Out Allowance Over Time

Some events that may warrant adjusting the live-out allowance

how does live out allowance work

Determine if the benefit is taxable

Your first step is to determine whether the benefit you provide to your employee is taxable and has to be included in their employment income when the benefit is received or enjoyed.

Whether a benefit is taxable or not depends on whether an employee or officer receives an economic advantage that can be measured in money, and whether that individual is the primary beneficiary of the benefit.

What is a living out allowance and how do I pay it to employees/contractors?

A living out allowance is an amount paid to employees or contractors who work away from their principal place of work. This can include accommodations, daily meals and incidentals.

Allowance vs reimbursement

An allowance or an advance is any periodic or lump-sum amount that is paid to employees/contractors on top of their regular wages/rates, to help them pay for certain expenses related to out-of-town work, without having them support the expenses with receipts.

The allowance is usually a predetermined amount (like $17 for a meal) and is not based on actual cost. An allowance can be calculated based on distance, time or something else, such as a meal allowance based on the number of meals per day.

A reimbursement is an amount you pay to your employee to repay expenses he or she had while carrying out the duties of employment. The employee has to keep proper records (detailed receipts) to support the expenses and give them to you.

Living Away From Home Allowance – A Simple Explanation

What is a live out allowance?

(Plus Benefits) Working a job that provides a live out allowance can offer unique opportunities to work in different locations, sometimes outside of the country. Live out allowances can permit employees to work outside of their homes and usual offices while providing expense coverage for food, transportation and housing.

How does the living out allowance work and is it tax-free?

The common questions are, “How does the “Live Out Allowance” work and is it tax-free?” The answer is: If you work at special work sites or remote locations and meet certain conditions, the Living Out Allowance you receive is not taxable benefits, but the amount must be reasonable.

Can a company pay a living out allowance?

In certain situations, a company can pay and deduct a living out allowance and the employee does not have to report the allowance in their income. In order for this to apply, the allowance needs to be reasonable. Additional criteria must be met as stated below for employees at a special work site and employees in a remote location.

Are live-out allowances tax-free?

The majority of the time, live-out allowances are tax-free and cover the cost of meals, daily necessities, housing, and travel. Employees who receive live-out allowances keep their receipts in order to track their spending and compare it to their allowance limits.