Contractors paid mainly for their labour are employees for superannuation guarantee purposes. This is the case even if the contractor quotes an Australian Business Number (ABN).
You must make super contributions for these individuals if you pay them:
- under a verbal or written contract that is wholly or principally for their labour – that is, more than half the dollar value of the contract is for their labour
- for their personal labour and skills – which may include physical labour, mental effort or artistic effort – and not to achieve a result
- to perform the contract work personally – that is, they must not delegate.
If you make a contract with someone other than the person who'll actually provide the labour – for example, with a company, trust or a partnership – you don't pay that person super.
Example: Contractor, not employee
Harry's Hobby Shop wants to paint their new shop and they contract Pete's Paints for the job. The entire job is completed by one painter from Pete's Paints but that does not make the painter an employee of Harry's Hobby Shop; the contract is between Harry's Hobby Shop and Pete's Paints.
Harry's Hobby Shop paid Pete's Paints to achieve a result. Pete's Paints may have SG obligations for the painter.
Example: Employee, not contractor
David's Caravan Park has a contract with Amanda, a freelance administrative assistant, to answer phones and do administrative work for 15 hours per week. The contract specifies that Amanda herself must perform the work. Amanda has an ABN and invoices David weekly for the hours she works. Amanda is considered David's employee for SG purposes because:
End of example
- Their contract is wholly for the labour and skills Amanda provides.
- She performs the work personally
- She is paid according to the number of hours worked.
How much super to pay for contractors
The minimum super amount you have to pay is 9.5% of each worker's ordinary time earnings (OTE).
When you pay super for a contractor employee, you must calculate the minimum super amount on the labour component of the contract.
If the values of the various parts of the contract aren't detailed in the contract, we'll accept their market values and take normal industry practices into consideration. If you can't work out the labour portion of the contract, you can use a reasonable market value of the labour component.
Paying an additional 9.5% wages on top of your contractor's usual pay does not count as a super contribution. To meet your super obligations for your contractor employees, you must pay at least the minimum super guarantee contribution (9.5%) to their super fund account each quarter.
If you pay an individual under a contract that is wholly or principally for their labour, and you pay them for hours worked rather than to achieve a result, you have to make super contributions for them (even if they quote an ABN). The minimum super amount you have to pay is 9.5% of each worker's ordinary time earnings.