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Superannuation is money you pay to provide for your workers’ retirement. In some circumstances, this can include contractors. Many employers assume that superannuation is not payable for contractors because they are an independent business with an Australian Business Number or because they should make their own contributions. However, this is not always the case.

This article explains the superannuation guarantee, the relevant factors to determine if your worker is an employee or a contractor, and the general principles and tools you can use to determine whether super needs to be paid for your contractors.

Superannuation Guarantee

The superannuation guarantee (SG) is the minimum amount of superannuation you must pay to your worker’s super fund. Currently, the SG is 10% of a worker’s ordinary time earnings (OTE) (increasing to 10.5% from July 1, 2022). Indeed, OTE is the amount your worker earns for their ordinary hours of work. For instance, OTE includes commissions, shift loadings, allowances and bonuses, but excludes overtime payments.

Employee or Contractor

The first issue to consider is whether your worker is a contractor or an employee. In order to determine this issue, examine the entire relationship between your business and the worker. A multitude of factors are relevant, including but not limited to:

  • whether you have control over what work is to be performed by your worker and how it is to be performed;
  • if you set the weekly hours and times of work for your worker;
  • whether the worker is engaged to achieve a specific result;
  • the ability of the worker to delegate work to another person;
  • an obligation of the worker to wear a uniform bearing your business’ logo;
  • if your worker is required to provide their own tools and equipment;
  • whether your worker can refuse work that you offer to them;
  • if your worker maintains their own insurances; and
  • if your worker provides you with tax invoices for their services.

If your worker is an employee, you generally need to pay super in addition to their wages if they are paid $450 or more (before tax) in a calendar month.

However, if you mainly pay contractors for their labour, the SG considers them to be employees.

Superannuation Payments for Contractors

General Rule

As a rule, you need to pay super for your contractors if they are wholly or principally engaged for their labour. For instance, a contract may be considered ‘wholly or principally for labour’ if the contractor:

  • is paid mainly for their labour;
  • is paid for their personal labour and skills (including physical, mental or artistic labour), rather than to achieve a result; and
  • performs the work personally and cannot delegate the work.

Indeed, the SG is calculated on the labour portion of the contract for a contractor employee. However, if you cannot work out the labour component of the contract, you can use a reasonable market value of the labour for the calculation.

ATO Tools

The Australian Tax Office (ATO) has published two tools that you can use to guide your decision about whether your worker is entitled to super payments:

  1. the employee/contractor decision tool will help you determine if your worker is an employee or contractor for super and tax purposes; and
  2. the superannuation guarantee eligibility decision tool will help you work out if your worker is eligible for SG, including any contractors treated as employees for super purposes.

Exemptions

You are not required to pay super to your contractor if they are:

  • paid less than $450 (before tax) in a calendar month;
  • under 18 and work less than 30 hours per week;
  • a domestic or private worker, such as a nanny, carer or housekeeper, and work for less than 30 hours per week; or
  • providing their services through an incorporated company.

Timing of Superannuation Payments

Super payments need to be made at least four times a year. Therefore, your worker’s super fund must receive the payments by the quarterly due dates. The current quarterly due dates, for instance, are set out below.

Quarter

Period

Due Date

1

1 July – 30 September

28 October

2

1 October – 31 December

28 January

3

1 January – 31 March

28 April

4

1 April – 30 June

28 July

Suppose you do not pay your worker’s super on time and to the correct fund. In that case, you must pay the superannuation guarantee charge (SGC) and lodge an SGC statement to the ATO. Indeed, the SGC is not tax-deductible and consists of:

  • SG shortfall amounts;
  • interest (currently 10%) on the SG shortfall amounts; and
  • an administration fee of $20 per worker, per quarter.

Key Takeaways

Contractors paid primarily for their labour are considered to be employees for superannuation guarantee purposes. Therefore, we recommend using the ATO tools to guide your decision about whether your workers are entitled to super payments. Furthermore, you should seek further independent tax or legal advice if you remain unsure. Indeed, complying with your super obligations will reduce the risk of claims by your workers for unpaid super and the liability to pay the superannuation guarantee charge.

If you have any questions about your obligations to pay superannuation to contractors, contact LegalVision’s employment lawyers on 1300 544 755 or fill out the form on this page.

Frequently Asked Questions

What is OTE?

OTE stands for Ordinary Time Earnings. It is the amount your worker earns for their ordinary hours of work. For instance, OTE includes commissions, shift loadings, allowances and bonuses, but excludes overtime payments.

When do superannuation payments need to be made?

Super payments need to be made at least four times a year. Therefore, your worker’s super fund must receive the payments by the quarterly due dates.

When do I not need to pay a contractor superannuation?

You do not need to pay superannuation to a contractor you paid less than $450 (before tax) in a calendar month, is under 18 and works less than 30 hours per week, is a domestic or private worker (such as a nanny, carer or housekeeper) and works for less than 30 hours per week, or a contractor who provides their services through an incorporated company.

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