Knowing when you need to pay super for employees can be tricky if you have staff hired as independent contractors. You may not be aware that even if your full-time, part-time or casual contractor is registered with an ABN number, you still may be obligated to make compulsory superannuation payments. It’s not enough to add an extra 9.5% to their invoice total, as employers must make the payments directly into the employee’s chosen super fund. There are severe consequences for failing to comply with the Australian Taxation Office’s (ATO) super compliance guidelines.
According to the ATO, for an independent contractor to be eligible for superannuation payments the contract must be for “personal labour and skills, performing the contract work personally, being paid for the hours worked rather than to achieve a result and it must be directly between you and your employer”
The definition of the word ‘labour’ in this case also includes creative, education, health, retail, hospitality etc. industries, not just those work industries that carry out physical work such as construction and builder contractors. For example, creatives in the freelance industry, such as web developers, or graphic artists, may be entitled for super payments if they are paid for their labour. General rule of thumb is when a person is being paid by the hour and they are unable to delegate the work to anyone else, they are eligible for you to pay their super funds.
If you’re not sure if your contractors should be paid superannuation payments, it’s better to check with a taxation accountant who can help you adhere to the strict ATO guidelines rather than risk being penalised because even the most complicated business set-ups may find themselves obligated to pay super.
A recent case before the Federal Court (Moffet vs Dental Corporation Pty Ltd) brings attention to the possible risks you may be liable for, in regards to guaranteed super payments.It was determined Dr Moffet, a dentist who continued to work at his practice on a ‘service agreement’ after he sold the practice to a third party, was deemed to be an employee for the purposes of superannuation. The new practice owners were required to contribute the minimum amount to his super fund, despite the fact Dr Moffet was contractually obligated to pay a cash shortfall if the practice did not reach its annual targets. This case is referenced to demonstrate how complicated the tax laws around super contributions and independent contractors can be and as a warning to business owners, not to assume they are exempt from paying super.
Confused about whether you have to pay super for your full-time, part-time or casual contractors? Let us help you review your employees to ensure you are complying with the ATO’s strict guidelines. After all, it’s better to be safethan being penalised by the tax office.
Contact us today for an employee assessment.