Superannuation for contractors: Is it your responsibility to pay it?
There’s a lot of confusion in the building and construction industry about superannuation payments for contractors. Are employers responsible for making those payments as per the Superannuation Guarantee (SG)?
Some business owners believe that if the contractor satisfies the “80/20 rule” (i.e. they’re paying less than 80% of the contractor’s income), then they don’t need to pay any superannuation. Others believe they’re not responsible for superannuation if the contractor has an ABN and they only hire that contractor for a short project.
But these people are wrong, and may well be liable to pay a Superannuation Guarantee Charge (SGC).
Whether or not you need to make superannuation payments depends on whether the ‘contractor’ is an employee or an independent contractor. And the difference?
- An employee provides a contract of
- An independent contractor provides a contract for
When you need to make superannuation contributions
You must make superannuation contributions to any contractor you hire:
- for their labour (wholly or principally) under a written or verbal contract (i.e. more than half of the contract’s dollar value is for their labour)
- for their personal labour and skills (e.g. physical labour, mental or artistic effort) rather than to achieve a result
- to perform the contract work personally (i.e. they can’t delegate).
When you don’t need to pay superannuation contributions
You aren’t responsible for the superannuation contributions of any contractor:
- you hire to achieve a result rather than for their labour. To satisfy this criterion:
- you must hire the contractor to complete a project
- their invoice must specify the project and the price for the completing it.
- correcting errors in their own time and at their own cost. (In this case the contractor would not be issuing an invoice.)
- who delegates work to their own employees.
Don’t risk having to pay the SGC
As you can see, this area of tax law can be confusing, especially for those in the building and construction industry. While the Australian Taxation Office has a tool to help you determine your responsibility, you should always get in touch with your accountant to find out what’s relevant for your business.