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Should you be paying superannuation contributions for contractors?

by Brendan Henderson Director Brendan is a Chartered Accountant with over 20 years’ experience. Brendan specialises in tax, accounting and commercial issues for businesses and their owners, listed companies and subsidiaries of multi-national corporations. Brendan’s expertise includes acquisitions, restructuring and sales, ATO audits, asset protection and succession and estate planning. Contact Brendan

Many employers are surprised to discover that in some circumstances, they are required to pay superannuation contributions behalf of their contractors. For some, they only become aware of the problem years after they engaged the services of the contractor, leading to awkward conversations and significant exposure to superannuation guarantee charges and penalties.

Many employers are surprised to discover that in some circumstances, they are required to pay superannuation contributions behalf of their contractors. For some, they only become aware of the problem years after they engaged the services of the contractor, leading to awkward conversations and significant exposure to superannuation guarantee charges and penalties.

The issue arises because of the extended definition of ‘employee’ contained in section 12 of the Superannuation Guarantee (Administration) Act. It provides that for the purposes of the SG Scheme, an employee includes:

  1. persons who come within the ordinary meaning of employee as defined in case law; and
  2. persons who fall within the expanded meaning as set out in section 12(2) to 12(10).

Most employers are broadly familiar with the concepts used to determine whether a contractor is an employee under the ordinary meaning. This includes factors such as the ability to delegate, control over the work, who provides the equipment and who bears the risk of fixing up defects in the work.

Employers are less familiar with the circumstances when a contractor will fall within the expanded meaning of employee. The most common expansion occurs when a contractor is engaged under a contract wholly or principally for their labour. This may capture many contractors who are engaged to provide services (e.g. couriers, nurses, physios, consultants, etc.).

In his ruling SGR 2005/1, the Commissioner states that he will consider a contract to be wholly or principally for the labour of an individual if:

  • the individual is remunerated for their personal labour or skills;
  • the individual must perform the contractual work personally; and
  • the individual is not paid to produce a result.

If your business engages contractors who fall within these guidelines, we recommend that you speak with your Client Relationship Manager to determine whether you should be paying superannuation contributions in respect of the payments to those contractors. The sooner an exposure is identified and addressed, the better the outcomes will be for all concerned.


Mutual Trust Pty Ltd ACN 004 285 330 (AFSL 234590). Liability limited by a scheme approved under Professional Standards Legislation. For participating members (other than for the acts or omissions of Australian Financial Services Licensees). This information is general in nature and subject to change. It does not constitute tax, legal or financialadvice. We recommend you seek advice specific to your circumstances before taking any action. Copyright © 2014 Mutual Trust Pty Ltd.
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