We regularly come across this question. I have a subbie working for me but I’m not sure if I need to pay them super…. The Superannuation Guarantee (Administration) Act (SGA Act) mandates compulsory superannuation contributions for employees. However, the SGA Act’s definition of ’employee’ is expansive, meaning that it includes independent contractors under certain conditions.
Given the Australian Taxation Office (ATO) has been cracking down on the non-payment of superannuation to subcontractors, it’s essential to know whether your subcontractors are deemed employees in relation to superannuation contributions.
The primary consideration in this space is, that Contractors paid primarily for their labor are considered employees for the Superannuation Guarantee (SG), meaning employers are obliged to make super contributions on their behalf.
It doesn’t matter if the contractor has an Australian business number (ABN).
Superannuation must be paid for subcontractors where you pay them
However, if your contract is with a company, trust, or partnership, there is no obligation to make super contributions for the individual they assign to perform the task.
If you’re not sure if super should be paid, the ATO provides two online tools to assist in determining whether you should be paying superannuation for your subcontractor. These resources are:
The minimum super you must pay is the super guarantee percentage of the worker’s ordinary time earnings. This is the labour component of the contract. Do not include:
If the values of the different parts of the contract aren’t detailed in the contract and you can’t work out the labour component of the contract, you can use a reasonable market value of the labour section.
Paying an additional amount equal to the SG rate to the contractor on top of their usual pay does not count as a super contribution – it must be paid into the employees super fund. To avoid the super guarantee charge, you must make the SG contribution to the contractor’s super fund each quarter.
If you are required to make superannuation contributions for your subbies (and your employees), you need to ensure that these payments are made on time, and in full in order to claim a tax deduction.
Where superannuation is paid late, the ATO will impose superannuation guarantee charge penalties, which can be up to 200% of the original amounts due, as well as interest and administrative charges. These amounts are also not deductible to the business.
Additionally, given the increase in data matching capabilities by the ATO, particularly with the use of TPAR, there’s more chance that businesses not paying super will be caught out.
Understanding and adhering to these obligations from the outset is crucial to avoid such penalties.
Your business is obligated to provide superannuation for employees entitled under the SGA Act, which typically includes most employees through the superannuation guarantee (SG). Additionally, this requirement extends to independent contractors primarily engaged in their labor. Given the ATO’s significant enforcement capabilities regarding superannuation regulations, understanding and fulfilling your obligations is crucial.
If you need help with your superannuation responsibilities, book an initial consultation for free. Reach out today by calling 1300 233 723 or by sending an email to [email protected].
