Super contributions for non-employees

Did you know that you can be liable to make superannuation contributions on behalf of people that are not your employees? This can be so even if a person describes themselves as being a contractor and has an Australian Business Number.

Too many small and medium business operators are not aware of this important issue. Not understanding this requirement can be very costly to your business.

The Law

Most business owners know that superannuation contributions have to be made for all employees. This is required in relation to any salary or wages paid to an employee – even if only $1. This is because the $450 amount, below which superannuation contributions were not required, has been abolished. Currently, for every $1 of salary and wages paid to an employee, 10.5 cents must be contributed to the employee’s superannuation fund.

But, there is a little-known provision of the superannuation law that has application when the person doing the work is not already an employee of the other party to the contract. This states:

“If a person works under a contract that is wholly or principally for the labour of the person, the person is an employee of the other party to the contract”.

Individuals involved in these types of situations are numerous in the Australian economy. This is particularly so, in the small and medium business sector.

Superannuation contributions will be required where a person is not an employee and the terms of the contract between the parties indicate that:

The person is paid principally for their personal labour or skills;
The person is required to personally conduct the work – this means that they can’t get anyone else to do the work; and
The person is paid for the hours they have worked and not for the production of a predetermined result.

Examples

Here are some examples of where this provision could apply:

An individual operates their own tele marketing business from home and has their own Australian Business Number. The person offers their services to businesses that want tele marketing services. ABC Pty Ltd engages the individual to provide 20 hours of tele marketing services. ABC Pty Ltd must make superannuation contributions for the individual.

An individual operates an in-office shoulder massage service to businesses that have large offices. The individual has their own ABN. Legal Eagles (a law firm) engages the individual to visit its offices every Friday afternoon for four hours to provide shoulder massages to its staff. Legal Eagles must make superannuation contributions for the individual.

How to avoid the issue

If this issue could be a problem for your business, there is a way to avoid its potential application. The individual providing the labour should be requested to provide their services through an entity such as a trust, partnership or company. If this occurs, the provision requiring superannuation contributions cannot apply. This is because the contract for the services is not with an individual. The contract is with the entity.

If you have any questions, please contact our team. We are here to help:

(03) 9374 8400

hello@mksgroup.com.au