If you are a contractor or sub-contractor, then there is a chance that you may be entitled to super contributions made by the businesses you engage with. One of the first things we ask when we engage contractors with our accounting service is whether or not they are receiving super contributions from whoever has engaged in their work. Often times, we receive confused or blank looks as they weren’t aware that they were entitled to this. Due to the self-employed nature and arrangements of being a contractor, super is often a neglected part of the negotiation of fees. Therefore, as a contractor, you could potentially be entitled to super contributions made for you if you meet the correct criteria.
1. Who Is Eligible?
The Australian Taxation Office (ATO) and the Super Guarantee (SG) has specified that anyone who is an employee must be paid superannuation by their employer a minimum of 9.5% of ordinary time earnings as long as they earn $450 or more in a calendar month. This is regardless of whether you are full-time, part-time, casual or a contractor. If you are a contractor, you may still be considered an employee based on specific criteria. But first, it’s important to differentiate the difference between an employee and a contractor:
– Unable to pay someone else to do their work
– Paid for time worked or on a commission
– The business provides equipment and assets to complete the work
– The business is legally liable for the work done by the employee
– The business has the right to direct the way you do your work
– Considered part of the business
– Work can be subcontracted or delegated
– Paid based on results achieved based on a quote provided
– The contractor provides own equipment and assets to complete the work
– The contractor takes on commercial risk for the work completed
– The contractor has freedom of the way the work is completed
– Services are performed specific to contractor/agreement and they are free to accept/decline additional work
2. Determine if your Contractor is an “Employee”
Employers are required to make contributions towards contractors (even if the contractor quotes with an ABN), defined as employees for super purposes if they meet the below criteria:
- If you pay them under a verbal or written agreement that is wholly or principally for their labour i.e. if more than half of what you pay them is for their labour
- If you pay them for their labour and skills, not to achieve a result
- The contract work is personally performed by the contractor and is not delegated
However, there are exceptions that can disqualify a contractor from being entitled to super payments, such as if the contractor:
- Earns less than $450 a month
- Is under 18 years of age
- Is not paid for their labour (e.g. doing the work for free) then this labour is considered ancillary
- If the work is contracted to a company, trust or partnership
If the work is contracted to a company, trust or partnership – then super is not required to be paid. The ATO outlines a very simple but clear example:
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
If you are still uncertain whether or not you are entitled to super contributions, click here to use the employer/contractor decision tool to help give you an answer.
3. What Happens if Businesses Don’t Pay Superannuation?
By law, businesses are obligated to pay the minimum superannuation requirements each quarter. Therefore, accurate record-keeping is important in ensuring that a business is complying with these obligations. Significant penalties for breaches are not uncommon and involve the business needing to backpay all of the missed payments.
4. Personal Contributions to Super
If you are not entitled to super contributions from your employer or simply want to add to your retirement savings, you can do so through personal contributions to your nominated super fund. Whilst this is not compulsory, this is particularly useful as you can claim these on tax deductions up to the age of 75 for contributions up to $25,000. This is known as concessional super contributions which are taxed at a much lower rate of 15% when received by your super fund. For more information, visit the ATO webpage to about tax concessions with super
You may also receive government co-contributions – however, this is generally for low-to-middle income earners who earn $51,696 or less (as of 2019), where the government will match your contribution up to a maximum of $500. This can be determined at the time of lodging your tax return – if it has been determined that you are eligible, the co-contribution will be paid to your super fund automatically. For more information, visit the ATO webpage about super co-contributions.
5. How to Contribute to your Super Fund
If you already have a super fund setup from a previous employer, check with your super fund whether you can continue to make super contributions. You will need to give them your tax file number so that they can accept contributions. Alternatively, you may want to consider switching to an alternative fund if you find that the ongoing fees and costs associated with having your super with a particular fund are too high.
It’s important for both contractors and businesses that engage their work in understanding their rights and obligations when it comes to super. After determining whether there are super contributions that must be paid to the contractor, clear and accurate record-keeping is important to ensure that obligations are met. If you aren’t certain whether or not you’re entitled to super contributions, feel free to speak to our team of Chartered Accountants by booking a free 45-minute initial consultation.
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Please note that every effort has been made to ensure that the information provided in this guide is accurate. You should note, however, that the information is intended as a guide only, providing an overview of general information available to contractors and small businesses. This guide is not intended to be an exhaustive source of information and should not be seen to constitute legal or tax advice. You should, where necessary, seek your own advice for any legal or tax issues raised in your business affairs.