Superannuation is important to ensure your retirement savings continue to grow while you can still contribute.
Contractors have the same rights to superanuation as everyone else, with a few minor differences.
If you’re looking to find the amount of super you’re entitled to as a contractor and how you can get it, this guide to superannuation might be useful to you.
Employee vs Contractor: what’s the difference?
The first issue to consider is whether you are an employee – either full-time, part-time or casual – or a contractor. A simplified definition from the Australian Taxation Office is as follows:
“An employee works in your business and is part of your business. A contractor is running their own business.”
But it’s a little more complicated than this. Generally, there are six key factors that separate an employee from a contractor, according to the ATO:
|
Employee |
Contractor |
| · You can’t pay someone else to do their work
· You are paid either for time worked or on a commission · Your business provides the equipment and assets required to do the work · Your business is legally responsible for the work done by you · Your business has the right to direct you in the way you do your work · You work within and are considered a part of your business |
· You can subcontract/delegate your work
· You are paid for a result achieved based on the quote provided · You provide all or most of the tools or assets required to do the work · You take on the commercial risks of doing the work · You have freedom in the way the work is done, subject to conditions · You perform services as specified in your contract or agreement and are free to accept or refuse additional work |
You need to consider all of these factors when working out whether you’re an employee or a contractor.
Do contractors get superannuation?
According to the rules stated in the Superannuation Guarantee (SG), contractors being paid for their labour are employees for superannuation purposes.
The SG is the compulsory 9.5% superannuation contribution that employers must pay into a super fund for their employees. This 9.5% contribution is calculated based on ordinary time earnings, as long as they earn $450 or more in a calendar month. You must be paid super regardless of whether you are a part-time employee, casual employee or a contractor. You also need to be paid super even if you’re a temporary resident in Australia.
If you hire a contractor, you must make super contributions for them if you pay them:
- For their personal labour and skills
- To perform the contracted work personally and they don’t delegate the work to someone else
- Under a verbal or written contract where more than half of the dollar value of said contract is for their labour
Under the SG rules, the minimum amount of super you need to pay your contractor is 9.5% of their ordinary time earnings. If the value of these earnings isn’t detailed in the contract, then the ATO will accept the market values of such a service.
So if you are a contractor, you’re entitled to 9.5% in super from those who have made use of your services.
When are contractors not eligible for superannuation?
There are some exceptions when it comes to earning super as a contractor. There are four key things that can disqualify a contractor from superannuation entitlements:
- If the contract is between the principal (those paying) and a contractor of an incorporation, the contractor is not entitled to superannuation.
- If the contractor is not paid for their labour (i.e they do it for free) then this labour will be considered ancillary to the provision of goods and they will not be entitled to super.
- The contractor must do the work themselves unless their contract explicitly says they can delegate the work.
- They must be paid for their time (like an employee) instead of to achieve a certain result. If the contractor is paid to reach a particular goal or result, they are not considered an employee and will not be entitled to superannuation.
In addition, there are some rules set out by the Superannuation Guarantee that can disqualify people from earning super that are not limited to being a contractor:
- You must be over 18 and earn at least $450 in a calendar month
- If you’re under 18, you must have earned at least $450 a month and worked at least 30 hours in a week
Contractor, not employee
Harry’s Hobby Shop wants to paint their new shop and they contract Pete’s Paints for the job. The entire job is completed by one painter from Pete’s Paints but that does not make the painter an employee of Harry’s Hobby Shop; the contract is between Harry’s Hobby Shop and Pete’s Paints.
Harry’s Hobby Shop paid Pete’s Paints to achieve a result. Pete’s Paints may have super obligations for the painter.
Source: ATO
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.
Fee, performance and asset allocation information shown in the table above have been determined according to the investment profile in the Canstar Superannuation Star Ratings methodology that matches the age group you selected.