Did you know you may need to be paying super to your contractors?

Does your business or organisation engage independent contractors? Many businesses assume that contractors are exempt from superannuation, but this is not always the case. Some independent contractors can be entitled to super contributions if they are considered a “deemed employee” under the Superannuation Guarantee (SG) legislation.

Recent regulatory focus on superannuation compliance means it’s essential to review your contractor arrangements to avoid unexpected liabilities.

Employee or Contractor?

Generally, an employee works as part of your business, while a contractor runs their own business and provides services independently. However, the distinction is not always obvious. Courts use a multi-factor test to determine whether a worker is an employee or contractor.

Factors often considered include:

• Subcontracting: Employees cannot subcontract their work; contractors usually can.
• Independence: Employees operate within your business; contractors run their own business independently.
• Multiple clients: Contractors often provide services to multiple clients, not just your business.

For more details on classification, see our article ‘Have you classified your workers correctly?’.   Even if someone is genuinely a contractor, they may still be entitled to superannuation under the deeming rules in the Superannuation Guarantee legislation.

When Contractors May Be Entitled to Super

The Superannuation Guarantee (Administration) Act 1992 expands the definition of “employee” to include certain contractors. A contractor may be considered a deemed employee if:

1. They are engaged under a contract that is wholly or principally for their labour,
2. They must perform the work personally (cannot delegate), and
3. They are paid for their labour and skills, rather than to achieve a specific result.

This applies even if the contractor has an ABN. The presence of an ABN does not automatically remove superannuation obligations. (ATO Guidance)

Are There Any Exemptions?

Super contributions generally do not apply when:

• The work is domestic, under 30 hours per week (e.g., some nanny arrangements).
• The contractor is engaged through a separate legal entity such as a company, trust, or partnership.

Note: The $450 per month minimum earnings threshold no longer applies.

Superannuation Guarantee Rate

From 1 July 2025, the super rate you are obliged to pay (Superannuation Guarantee rate) is 12%. This rate applies to all employees, deemed employees and certain contractors.

Consequences of Non-Compliance

Failure to pay superannuation contributions to deemed employees can result in a Superannuation Guarantee Charge (SGC), which includes:

• The total shortfall of unpaid superannuation,
• Interest of 10% per annum on the shortfall, and
• Administrative penalties, potentially up to 200% of the outstanding liability.

How Morrows Can Help

If your business engages contractors, it’s crucial to review agreements and confirm your superannuation obligations. Our Morrows team can assist by:

• Reviewing contractor arrangements,
• Identifying potential historical liabilities, and
• Preparing and managing voluntary disclosures to the ATO if required.

Getting this right ensures compliance, avoids costly penalties, and provides peace of mind. Please contact us if you need any assistance.