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Super for Contractors

24 November 2022

There may be times when you need to engage a contractor for a specific project or to fulfill a business requirement quickly, whatever the reason being mindful of Super obligations is important. Under Australian Tax rulings Contractors may be considered as employees for the purposes of superannuation and businesses may need to pay super to them.

Determining if a contractor should be treated as an employee for super payments is not as straight forward as checking if they have an Australian business number (ABN). If a contractor is mainly paid for their labour, they would likely be considered employees for superannuation guarantee (SG) purposes. 

Employers should make super contributions to contractors if:

  • The contractor has a verbal or written agreement which pays them mainly for their labour
  • Payment isn’t dependent on achieving a specified result
  • The individual needs to personally deliver the activity and it can’t be delegated to someone else

For example, an employer engages a receptionist to answer phones and perform administrative work for a specified number of hours per week. A contract is issued stipulating the receptionist must perform the work themselves. The engaged receptionist has an ABN and invoices the employer weekly for the hours worked. The receptionist is considered as an employee for the purposes of super payments.

When an employer enters into an agreement with a person who is considered a company, trust or partnership super would not be payable. In this case the person is responsible for their own super payments.

For instance, if an employer requires a wall to be fixed in their office. They engage a builder as a contractor to perform the work. The builder is paid based on the task being complete, and super payments are not payable.

If it’s determined that super payments should be paid, a choice of fund is permitted within 28 days of the contractor’s start date and employers need to pay the current super guarantee percentage of ordinary time earnings. Super is only payable on the labour portion and not for material, equipment, overtime and GST.

The Australian Tax Office (ATO) has a useful tool called the superannuation guarantee eligibility decision tool. This can be used to help you determine if super payments are required to contractors.

If you have any questions on how to manage your Super obligations it’s best to seek advice from an Accountant or trusted Financial Advisor. If you are seeking advice on how to engage contractors, please contact our Impact HR Consultants on 1300 474 672 or .

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