At face value, it may seem that independent contractors are not entitled to receive super. However, there are circumstances and situations where they are deemed an employee for superannuation guarantee (SG) purposes.

• The law has shifted from a multifactorial approach around contractor superannuation.
• A contract is the 'first port of call' to confirm and scope employment relationships.
• An onus is on employers to get things right determining contractor eligibility for super.

Attempting to work out if an independent contractor is in fact entitled to SG payments (12% from July 1, 2025) can be confusing. Following are some key, though not absolute, criteria based on legislation, court decisions and ATO rulings to help clarify this situation.

The primacy of the contract

ATO Ruling TR 2023/4 Income tax and superannuation guarantee: who is an employee? states:

To determine the nature of the contractual relationship between a worker and an engaging entity, it is the terms of the contract alone, whether express or implied, which are to be taken into account.

As opposed to previous interpretations, any factors around primacy and totality of the working relationship are now considered within the scope and substance of the contract, rather than how the relationship works in practice.

When a contractor is likely to be an employee for SG purposes

According to the Superannuation Guarantee (Administration) Act 1992:

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.

From this, a contractor is likely entitled to superannuation if they:

• are paid principally for labour and hours/days worked versus achieving a specific result (for example. completing a project, based on a quote or costing)
• perform the work themselves (that is, in a personal capacity) as opposed to having the option of delegating it.                                 

When a contractor is less likely to be an employee for SG purposes

An independent contractor is less likely to be entitled to superannuation if they:

• provide most of the assets, equipment and tools to do a job
• have the option of declining additional work offered by the employer
• personally wear any risks regarding work undertaken
• are free to work for other parties, rather than exclusively for a particular business or being subject to employer controls
• provide services to versus within the business 
• carry on their own business as opposed to that of the employer.

These considerations would have a bearing on the scope of a contract and its wording.

When there is no obligation to pay super to contractors

Where someone performs work for another party through a third-party or interposed entity such as an incorporated company, trust, labour-hire firm or partnership, there is no obligation to pay them superannuation. Instead, the entities mentioned are responsible for superannuation payments.

Self-employed sole traders or partners don't have to pay themselves superannuation, but they can choose to make personal super contributions. However, if a sole trader has employees, they are required to pay super contributions for those employees.

Other less apparent exemptions include contractors who are:

• under age 18 and working fewer than 30 hours per week
• domestic or private workers (for example, a nanny, carer or housekeeper) working fewer than 30 hours per week.

Penalties for not paying super to eligible contractors

The party engaging a contractor is responsible for working out if the contractor is entitled to superannuation. Failure to make SG payments to eligible contractors on time and in full can make an employer liable for the
superannuation guarantee charge (SGC). This can encompass:

• base penalty rates up to 75% of any shortfall
• administrative fees
• interest on late payments
• additional penalties, which can be up to 200% of the SGC amount
• making company directors personally liable for SGC amounts.