Are contractors entitled to Superannuation?
Understanding your obligations when it comes to superannuation is an essential part of running a business.
In most industries, the answer to the question “Do I need to pay superannuation?” is a simple yes. But when it comes to the building and construction industry and contractors, the answer to this question is not so black and white.
Below is a list of factors to consider when working out your employer obligations. The following assumes the contractor is an individual. Contractors which are companies, trusts or partnerships are not entitled to superannuation.
What is your relationship?
Your business will need to first determine whether the individual is actually a contractor, or an employee. Consider the following:
Can delegate/subcontract work;
Is paid for a result achieved, or by quote using hourly rates or price per item;
Provides their own tools and does not receive an allowance or reimbursement for the cost of tools and equipment;
Is liable to rectify any defect in their work;
Has freedom in the work they do, subject to the contract;
Operates their own business independently of your business.
Can’t delegate/subcontract work;
Is paid for time worked, or price per item or by commission;
Is provided with tools or equipment by your business, or is provided with an allowance or reimbursement;
Your business is legally responsible for the work done by the individual;
Your business controls how the individual works;
The individual is not operating independently of your business.
After considering the above factors, if you are in an employer/employee relationship – you are obligated to pay superannuation.
If not, proceed on.
Is the contractor treated as an employee for superannuation purposes?
The has a wide net of circumstances under which individuals who are “contractors for taxation purposes” are treated as “employees for superannuation purposes”. You will need to consider:
Whether the employee is paid for their personal labour (more than 50%); and
Whether the contractor delegates work; and
Whether the contractor is paid for a result, or for their skills.
If the contractor is paid principally for their labour, performs the work personally and is paid for their skills then the contractor is an employee for superannuation purposes and you must pay superannuation for the contractor.
If the contractor falls outside of the boundary set by the Superannuation Guarantee (Administration) Act 1992, you will not need to pay the contractor superannuation.
So, how much super will you need to pay?
Like for regular employees, at least 9.5% of the worker’s ordinary time earnings must be paid into the worker’s nominated superannuation account.
The difference is with contractors, the minimum super amount is calculated on the labour component of the contract.
You also cannot pay an additional 9.5% directly to the contractor, it must be paid into a superannuation account.
The ATO no longer accepts ignorance of superannuation obligations as a defense.
Contact us at Dolman Bateman or Buildersbooks if you are looking for an experienced accountant or Bookkeeper.
This information is not to be relied upon without speaking to your accountant, tax agent or financial adviser depending on the advice.
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