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If you are a contractor tasked to do paid work for a business then you may be entitled to receive the statutory superannuation guarantee contribution to your super fund.
But it all depends on how you are engaged as a contractor, as determined by the Australian Taxation Office (ATO).
Put simply, the ATO says the difference between an employee and a contractor is that an employee works in a business and is part of that business, whereasa contractor runs their own business.
But while the Superannuation Guarantee (SG) is often thought of as something employers pay their employees, it’s possible for someone to be a contractor under the ATO’s definition and still be eligible to receive SG payments.
Professionals Australia is a trade union that represents about 25,000 contractors and consultants. CEO Jill McCabe told Canstar that a contractor who is paid wholly or principally for their labour may be considered an employee for superannuation purposes.
That means they are entitled to mandatory superannuation contributions from their principal contractor to be paid into their chosen super fund.
→Read more: How to choose a super fund
“While genuine independent contractors are typically responsible for contributing to their own superannuation, in certain cases, responsibility for contributing to superannuation may lay with the principal contractor,” she said.
Are you an employee or a contractor?
To get Superannuation Guarantee (SG) contributions as a contractor, the ATO says you must work as an individual, not part of a company, trust or partnership.
The ATO gives an hypothetical example of Harry’s Hobby Shop that contracts Pete’s Paints to paint the shop, and the entire job is carried out by one painter working for Pete’s Paints.
As the contract is between Harry’s Hobby Shop and Pete’s Paints, the shop is not responsible for any superannuation guarantee to the painter. Pete’s Paints may have superannuation guarantee obligations to the painter, depending on whether they were an employee or a contractor for SG purposes.
If that all sounds complicated then the ATO says there are six key factors that separate an employee from a contractor.
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| Employee | Contractor |
|---|---|
| You can’t subcontract or pay someone else to do your work. | You can subcontract/delegate your work. |
| You are paid either for time worked or on a commission. | You are paid for a result achieved based on the quote provided. |
| Your business provides you the equipment and assets required to do the work, or reimburses you if you provide them. | You provide all or most of the tools or assets required to do the work. |
| Your business is legally responsible for the work done by you. | You take on the commercial risks of doing the work. |
| Your business has the right to direct you in the way you do your work. | You have freedom in the way the work is done, subject to conditions in the contract. |
| You work within and are considered a part of the business. | You perform services as specified in your contract or agreement and are free to accept or refuse additional work. |
To further help determine whether you are considered an employee or a contractor the ATO has an online decision tool. It takes you step-by-step through a series of questions to determine your likely status for tax and superannuation purposes.
But the ATO says this is only a guide and if you are still unsure at the end you should seek independent advice.
The usual superannuation guarantee eligibility rules still apply, which includes earning at least $450 a month. Again, the ATO has a useful online tool to help you work out if you are entitled to the superannuation guarantee.
Beware of sham contracting
Some businesses may tell a worker they are engaged as a contractor when they should be regarded as an employee. The FairWork Ombudsman says this is known as sham contracting and is illegal.
Ms McCabe told Canstar that sham contracting undermines a workers rights and entitlements.
“Unfortunately, it is becoming an increasingly common practice for many businesses to engage workers as independent contractors to avoid paying entitlements such as superannuation and leave, when workers should in fact be hired as employees,” she said.
“Sometimes, sham contracting occurs recklessly or deliberately by an employer.”
The Ombudsman says courts can impose hefty penalties on businesses or individuals for sham contracting.
If you think you have been incorrectly engaged as a contractor, the Ombudsman says you should first try to raise this with the business, but if that doesn’t work you can contact the Ombudsman online at fairwork.gov.au or by phone on 13 13 94.
To compare your super options as a contractor, check out what’s available from the super funds rated by Canstar. The comparison table below displays some of the products currently available on Canstar’s database for Australians aged 30-39 with a balance of up to $55,000, sorted by Star Rating (highest to lowest), followed by company name (alphabetical). Use Canstar’s superannuation comparison selector to view a wider range of super funds.
Cover image source: shisu_ka/Shutterstock.com
This content was reviewed by Sub Editor Tom Letts as part of our fact-checking process.
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