Super for contractors¶

Many people assume that if a worker is a contractor, and especially if they have an ABN, then no super is owed. That is not always true. Some contractors are entitled to super, and the deciding factor is what the contract is really for.

This lesson explains the test in plain terms so you can spot when a contractor must be paid super.

In one line

If a contractor is engaged wholly or principally for their labour, they are treated as an employee for super — and you must pay super for them, ABN or not.

Why this matters¶

Getting this wrong is one of the most common super mistakes. If you treat a contractor as "no super" when the ATO would say super was owed, the shortfall builds up quietly and can become expensive to fix later. Knowing the labour test up front protects your business.

What you will learn¶

That some contractors are entitled to super
What the "wholly or principally for their labour" test means in plain terms
Why an ABN does not by itself mean no super

Understanding the concept¶

The ATO explains that if you engage a contractor under a contract that is wholly or principally for their labour, that contractor is treated as an employee for super purposes. That means you must pay super for them, under the same rules as your employees.

In plain terms, "wholly or principally for their labour" means the contract is mostly about the person's own work, skills and effort — not mainly about supplying goods, tools or a result they can get someone else to produce. If you are really paying for that person to do the work themselves, the labour test is likely met.

A few things to keep in mind:

An ABN does not settle it. The ATO says this can apply even if the contractor quotes an ABN. Having an ABN does not by itself mean no super.
The contract is with the person. The ATO says the contract must be directly with the individual. If the work is engaged through a company, trust or partnership, this rule does not apply in the same way.
The amount does not matter. If the labour test is met, super can apply regardless of how much the contractor earns.

Contractor arrangements can be tricky, and the details of a contract matter. This lesson gives you the plain-English test. For harder cases and how to work out the labour part of a payment, see the Special situations module.

For accountants & bookkeepers

Where the labour test is met, the ATO treats the labour component of the contract as ordinary time earnings for super. If the contract does not split out the labour value, the ATO will accept the market value of that component. The engagement must be directly with the individual — interposing a company, trust or partnership changes the analysis. Assess each engagement on its own terms rather than by the "contractor" label.

Example¶

Alex is a contractor who quotes an ABN and invoices a business each month. Alex does the work personally — it is Alex's own time and skills that the business is paying for, not the supply of materials or a result Alex could hand to someone else to make.

Because the contract is wholly or principally for Alex's labour, the ATO treats Alex as an employee for super. The business must pay super for Alex, even though Alex has an ABN and sends invoices. The ABN did not change the answer — what mattered was that the contract was really for Alex's own labour.

Common mistakes¶

Assuming an ABN always means no super — the labour test still applies.
Treating everyone labelled "contractor" as outside super without checking.
Ignoring that the contract must be directly with the person, not a company or trust.
Thinking a small contract amount means super never applies.

How this works in myaccountant¶

In the app — when you set up a worker and run a pay run, myaccountant flags who is eligible for super, works out the super amount for those who are eligible, and pays it to their super funds. You are responsible for deciding whether a contractor meets the labour test and should be set up for super.

Key points¶

Some contractors are entitled to super.
The test is whether the contract is wholly or principally for their labour.
If that test is met, the contractor is treated as an employee for super.
An ABN does not by itself mean no super.
The contract must be directly with the person, not a company or trust.
For harder cases, see the Special situations module.

Learn next¶

General information only — not tax, super or financial advice.

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