Welcome to our series of HR interviews with Workplace Relations Associate Stephanie Shahine, who answers some of the most commonly asked questions by HR managers regarding employees’ legal entitlements and employers’ health and safety requirements.
On Monday 1 July 2021, the superannuation guarantee (SG) percentage set by the Australian Tax Office (ATO) increased from 9.5% to 10%.
This increase applies to permanent and casual employees. However, as a business the question arises, is there a requirement to pay contractors superannuation, and if so, how is the amount calculated?
According to the ATO, as an employer, you must pay a contractor superannuation if:
- you pay them mainly for their labour
- you pay them a minimum of $450 before tax in a calendar month1.
If you or your business pay contractors for their labour, they are considered to be employees by the ATO for SG purposes and you may be required to pay super to their chosen fund for them2. This does not change if the contractor holds an Australian Business Number (ABN).
For example, a business contracts a freelance administration assistant to do administrative work and answer the phone for 15 hours per week.
In the contract, it is specified that the individual contracted must be the one to perform the work. The individual holds an ABN and invoices the business weekly for hours worked. The individual is classed as an employee for SG purposes because:
- the contract is for the labour and skills provided by the individual
- the individual is paid according to the hours worked
- the individual performs the work themselves.
Assuming that the individual is paid a minimum of $450 per month, the business must pay SG contributions for them on top of their pay.*
*Example provided on the ATO website3.
Should you or your business enter into a contract with a company, trust or partnership, you are not required to pay super for any persons they employ.
How do I calculate how much super I pay contractors?
You must pay the minimum SG percentage of the contractor’s ordinary time earnings4, including their hours worked. Items you should not include in the SG calculations are:
- any payments to cover materials or equipment
- overtime rates
Paying the contractor an additional amount (on top of their usual pay) equal to the SG rate due is not categorised as the superannuation contribution. You must pay the SG contributions directly to their chosen super fund each quarter to avoid the super guarantee charge.
If an employer does not meet the super guarantee charge (SGC) obligation, they must pay the SGC and log a SGC Statement with the ATO6. In the end, this payment amounts to more than was initially required to be paid to the employee’s super and does not qualify for tax deduction.
Employers need to familiarise themselves with and understand their legal obligations to ensure they are not knowingly or willingly withholding or underpaying their employees’ entitlements. Doing so can lead to serious legal implications and prosecution by the ATO and the Fair Work Ombudsman, causing your business to face significant legal and financial penalties.
A HR Legal Audit conducted by Rigby Cooke’s Workplace Relations team can provide the HR function and, in turn, employers with comfort in knowing that they are legally compliant, or at least provide advance warning of any potential compliancy issues before they become problematic.
|Disclaimer: This publication contains comments of a general nature only and is provided as an information service. It is not intended to be relied upon as, nor is it a substitute for specific professional advice. No responsibility can be accepted by Rigby Cooke Lawyers or the authors for loss occasioned to any person doing anything as a result of any material in this publication.
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