Do You Need to Pay Super for Independent Contractors?
Here’s What You Need To Know
When it comes to paying superannuation, many business owners assume the rules apply only to employees. However, this isn’t entirely true. If you hire independent contractors, you may still be obligated to pay super for them—yes, even if they have their own Australian Business Number (ABN). The determining factor lies in the nature of their work.
Here’s everything you need to know about super obligations for independent contractors and why getting it right is critical.
Superannuation Obligations: Beyond Employees
The Superannuation Guarantee (SG) legislation requires businesses to pay super for both employees and some independent contractors. The key criterion is whether you pay the contractor mainly for their labour.
This applies in situations where:
- The contractor is engaged to perform work personally (rather than delegating it to someone else or providing significant equipment/materials).
- The work is paid based on hours worked rather than a deliverable outcome.
- The contractor operates more like an employee than a business entity.
Even if the contractor quotes an ABN, their employment status for super purposes can still fall under the SG rules.
The Irrelevance of Earnings
Unlike employees, where thresholds may apply, superannuation for contractors has no earnings limit. Whether you pay a contractor $100 or $10,000, if the payment is primarily for their labour, you must pay super at the current SG rate (currently 11% for 2024).
This eliminates one of the common misconceptions: the amount of payment does not exempt you from your super obligations.
Common Examples
Let’s look at some real-world scenarios where super might apply to independent contractors:
- Freelance Designers or Writers
If you engage a contractor to create designs or content but require them to perform the work personally and pay them hourly, this may trigger super obligations. - Tradespeople
Hiring a tradesperson to complete work using their own tools may not attract super. However, if they primarily provide their labour and minimal equipment, super may be required. - Consultants and Advisors
For consultants who are paid hourly or by the day for providing expertise (without tangible products), you may need to pay super.
Risks of Non-compliance
Failing to pay super for eligible contractors can lead to:
- Backdated super payments.
- Significant fines and penalties from the Australian Taxation Office (ATO).
- Damage to your business reputation.
The ATO has increased its scrutiny in this area, so businesses must understand and comply with these rules
How to Ensure Compliance
Failing to pay super for eligible contractors can lead to:Here are a few steps to stay on top of your obligations:
Here are a few steps to stay on top of your obligations:
- Review Agreements
Assess each contractor’s agreement. Are they being paid mainly for their labour? If so, you likely need to pay super. - Check ATO Guidance
Use the ATO’s online tools, such as the Employee/Contractor Decision Tool, to clarify your responsibilities. - Seek Professional Advice
Superannuation obligations can be complex. Consulting with an experienced bookkeeper or BAS agent, like BAS and Balances, can save you time and ensure you stay compliant.
Navigating These Rules with BAS and Balances
At BAS and Balances, we specialize in helping businesses simplify payroll, super, and compliance. Whether you need support understanding your obligations or managing payments, we’re here to help you avoid costly mistakes and focus on growing your business.
By outsourcing your payroll and super responsibilities, you can protect your business and ensure every worker—employee or contractor—is treated fairly and in line with ATO requirement
Got questions about paying super for contractors? Let’s chat! Reach out today for expert advice tailored to your business needs.
