Contractors: Superannuation Guarantee Surcharge
Are you liable to pay superannuation on your ‘Contractors’?
When engaging contractors to perform work in your business, you need to give careful consideration as to whether they are deemed to be employees for superannuation purposes. You are responsible for classifying workers for tax and super purposes. If caught not complying, the employer (or the directors of a company), will not only be required to meet these super obligations but will also be at risk of penalties and interest charges, and can face up to a 12-month prison sentence for failing to comply with the law.
If your contractor is an individual mainly for labour, it is highly likely the superannuation guarantee entitlements will apply. If you have engaged a contractor in a company, trust or partnership to do the work, this is a contracting relationship for tax and super purposes. The people who do the work may be directors, partners or employees of the contract but they are not your employees.
What contracts are caught by the superannuation guarantee rules?
Generally, a genuine contractor will not fall under the deemed employee for superannuation rules. However simply calling someone a contractor, or subcontractor and the fact that they have a valid ABN is not sufficient to ensure they are a genuine contractor.
A contractor who provides an ABN may still be caught under the superannuation provisions if their work is wholly or principally for labour.
How to determine contract verses employee for superannuation
Under common law, there are a number of factors to consider in assessing the true nature of the relationship as set out in Taxation Ruling TR 2005/16. Each relationship needs to be assessed under the specific circumstances and we highly recommend talking to your accountant and advisor if you face this situation.
As an overview, the key factors include:
Are you liable to pay superannuation on your ‘Contractors’?
When engaging contractors to perform work in your business, you need to give careful consideration as to whether they are deemed to be employees for superannuation purposes. You are responsible for classifying workers for tax and super purposes. If caught not complying, the employer (or the directors of a company), will not only be required to meet these super obligations but will also be at risk of penalties and interest charges, and can face up to a 12-month prison sentence for failing to comply with the law.
If your contractor is an individual mainly for labour, it is highly likely the superannuation guarantee entitlements will apply. If you have engaged a contractor in a company, trust or partnership to do the work, this is a contracting relationship for tax and super purposes. The people who do the work may be directors, partners or employees of the contract but they are not your employees.
What contracts are caught by the superannuation guarantee rules?
Generally, a genuine contractor will not fall under the deemed employee for superannuation rules. However simply calling someone a contractor, or subcontractor and the fact that they have a valid ABN is not sufficient to ensure they are a genuine contractor.
A contractor who provides an ABN may still be caught under the superannuation provisions if their work is wholly or principally for labour.
How to determine contract verses employee for superannuation
Under common law, there are a number of factors to consider in assessing the true nature of the relationship as set out in Taxation Ruling TR 2005/16. Each relationship needs to be assessed under the specific circumstances and we highly recommend talking to your accountant and advisor if you face this situation.
As an overview, the key factors include:
We strongly recommend assessing any current and future relationships with contractors to ensure that you are aware of your liabilities. We understand that it is a minefield to navigate and determine a clear answer in many circumstances so always feel free to touch base with us if you want to discuss further.