Contractors and superannuation

Employers who use ‘contractors’, are not required to make Super Guarantee (SG) contributions so long as the contractor is not considered an ‘employee’ for SG purposes.

Contractors who are classed as employees under SG legislation have the same super rights as any other employee and employers need to make SG contributions to a fund of the contractor’s choice (as well as offering salary sacrifice and voluntary contributions if these are offered to other employees).

Super payments made by employers for contractors covered by these regulations are generally eligible as tax deductions.

When is a contractor an employee under SG law?

It can be difficult to determine whether a contractor is in fact, considered an employee for SG purposes. Generally, SG legislation defines a person as an employee if they are an employee under common law. Factors such as the amount of control the contractor/employer has, the basis of a contract (results or hours worked), the ability to sub-contract and who accepts the risk of the project are all taken into account.

A contractor is considered an employee under the following ATO guidelines:

• The individual is remunerated (either wholly or principally) for their personal labour and skills
• The individual must perform the contractual work personally (there is not right of delegation)
• The individual is paid by reference to hours worked rather than completion of the contract.

Need help? The ATO website has a decision tool designed to help you understand whether your workers are employees or contactors so you can comply with your SG obligations.

What is the effect of using an intermediary, such as an employment agency?

A contractor, who counts as an employee under SG Law, is still entitled to super benefits, including salary sacrifice, when an agency is involved. However, different agency relationships impact on who pays the super contributions and therefore who can claim them as a tax deduction.

The recruiting agency pays the super entitlements if the contract states that the contractor works for the agency, although doing work for a third party. The end user pays the super entitlements if the intermediary acts purely as an agent for the contractor such that the end user controls the contractor through the contract.

Did you know? A contractor who counts as an employee under SG law is still entitled to super benefits when an agency is involved.

What about contractors not counted as employee’s under SG Law?

Only employees are entitled to SG super contributions, so contractors who don’t fit the criteria as an employee don’t get SG contributions of any type. However, these contractors may be entitled to tax deductions for voluntary contributions they make if they meet the relevant criteria as ‘self-employed’ persons.