It’s easy to assume that if you use contractors in your business that you don’t have to worry about paying super, but unfortunately this is not the case.
The Australian Taxation Office (ATO) looks more to whether the contract you employ them under is mostly related to labour. Where this is the case the ATO will consider the worker to be an employee, and you will need to pay super for contractors.
The ATO provides three different types of exertion that it considers labour:
1. Physical labour
2. Mental effort
3. Artistic effort
What happens if the contractor provides a mix of services?
Under the contract the ATO states that you only need to pay the super guarantee portion of the contract that is related to labour.
The ATO provides guidance on how to work the portion of the contract related to labour where it hasn’t been specifically mentioned. As per the ATO website:
“If the values of the various parts of the contract are not detailed in the contract, the ATO will accept their market values and will take the normal industry practices into consideration. If the labour component of a contract cannot be worked out you can use a reasonable market value of the labour component of the contact to represent the salary and wages of an employee”.
What do I need to do know?
First you need to determine whether or not this is applicable to you. The ATO provides a number of tools for business to use which clarify your position as provided below.
Employee/contractor decision tool
Superannuation guarantee (SG) eligibility decision tool
Superannuation Guarantee (SG) contributions calculator
What penalties can I incur?
If you don’t pay your eligible employees super, or pay it late you are liable for the super guarantee charge and will need to lodge additional forms with the ATO.
Save yourself some hassle and if unsure give us a call and we will guide you through.
Author: Adrian Wardlaw
Email: adrian@faj.com.au
