SUPER FOR CONTRACTORS: ARE YOU GETTING IT RIGHT?
As a small business owner, it’s common to engage independent contractors from time to time. They might be a graphic designer, a tradie, a musician or someone to help with admin support. But did you know that in some cases, you might still need to pay superannuation guarantee (SG) for them?
Even if the contractor has an ABN and sends you invoices, your business could still be legally required to pay super for the contractor.
So when does super apply?
Under superannuation law, if a contractor is paid mainly for their labour, and they personally do the work, they’re often considered an employee for super purposes. This means you may need to:
- make super contributions for them quarterly,
- offer them a choice of fund, and
- follow the same rules as you would for an employee.
It’s also important to know that paying them extra and asking them to “sort out their own super” isn’t an option. Your business has to make the payment directly to their superannuation fund (via a super clearing house) to meet your legal obligations.
There are a few key conditions to keep in mind. Super will usually apply if:
- the contract is mainly for the contractor’s personal labour (rather than equipment or materials),
- the contractor is paid based on time worked (like an hourly rate), and
- they do the work themselves and can’t delegate it to someone else.
For example, if you hire a freelance admin assistant to help out 10 hours a week and pay them by the hour, superannuation would likely apply. However, if you engage a contractor to build your website with a fixed quote and they deliver the finished result you will likely not be obliged to pay super.
It also matters who the contract is with. If it’s with a company or a trust , even if one person is doing the work, you don’t have to pay SG. However, if you’re contracting with the individual directly, and the work is mainly for their effort and time, SG could apply.
What’s the risk of getting it wrong?
If you don’t pay super for contractors in circumstances where it would apply, then Super Guarantee Charge (SGC) would apply, as would interest and penalties. In the most severe cases, liability can fall back to the company directors.
Not sure if SG applies to your contractor?
You’re not alone. The rules are tricky! That’s where your accountant or bookkeeper can help. They can:
- help you identify whether super is likely to apply,
- assist with setting up the right processes in your accounting software, and
- point you in the right direction if legal or tax advice is needed.
The above information was provided by Australian Bookkeepers Network Pty Ltd
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