Do you run a business where you employ contractors or subcontractors? A common question we get asked is whether the employer has an obligation to pay the superannuation guarantee (SG) for contractors or whether contractors can make their contributions. Several facts and circumstances must be taken into account in each case to determine whether the obligation falls on the employer or the contractor.
Employee or Contractor
The first issue to consider is whether your contractor is a contractor, or actually an employee. Read our article on “What is the Difference between an Employee and a Contractor” and use the contractor/employee tools on the business.gov.au site and the Australian Taxation Office website to assist you. There is also a “Superannuation for Contractors Tool” available on the ATO website. As an employer, you should take the respective online tests to find out whether your circumstances mean that superannuation is payable for your contractors.
Delegation of Work
What happens to superannuation payments in circumstances where your contractors have the right to delegate part of the work? If a contractor has the discretion to pay someone to help them meet their obligations under the contract, superannuation contributions are still required.
The super guarantee net is cast wide deliberately to ensure that just because people work as contractors, they don’t fail to save for their retirement. This is achieved by making sure the definition of “employee” for the purposes of the Fair Work Act is much broader than would normally be the case. When you pay a contractor more than $450 a month (before tax) for a contract where more than half of the value is for their labour, they may be considered employees for superannuation guarantee purposes. Labour includes physical labour, mental and artistic labour.
If you pay an employee $450 or more (before tax), you have to pay super guarantee on top of the employee’s wages. Whether or not the worker has an ABN is not the be all and end all of the matter.
The exemptions to not having to pay super include where the worker is:
- is paid less than $450 a month;
- provides both equipment and labour and the labour component of the service is less than 50%;
- is under 18 and work no more than 30 hours a week; or
- is paid to do private or domestic work for no more than 30 hours a week for a non-business employer, e.g. nannies and housekeepers
The upshot if you fail to make these payments is that you may be levied with the super guarantee charge, a penalty for failing to comply with the superannuation guarantee legislation. If you are seeking guidance on your super contributions, speak with an employment lawyer today.