Super for contractors¶

Many businesses assume they never have to pay super for a contractor. That is not always true. When a contractor is engaged wholly or principally for their labour, the super rules treat that person as an employee for super — so you may need to pay their super, even though they invoice you and have their own ABN (Australian business number).

Why this matters¶

Getting this wrong is a common and costly mistake. If you treat a labour-only contractor as fully outside the super rules, you can end up owing super you did not budget for. Knowing the test up front lets you set the arrangement up correctly.

What you will learn¶

• What "wholly or principally for their labour" means
• Why having an ABN does not remove a super obligation
• Why the contract has to be with the individual, not a company or trust

Understanding the concept¶

The ATO explains that if you engage someone under a contract that is wholly or principally for their labour, they are treated as your employee for super. In that case you pay super for them the same way you would for any employee.

"Wholly or principally for their labour" means the contract is mainly for the person's own labour and skills — their physical work, mental effort or artistic effort — and they do the work personally rather than sending someone else. When that describes the arrangement, super applies.

The ABN myth. The ATO is clear that this still applies even if the contractor quotes an ABN, and regardless of how much they earn. An ABN and an invoice do not, on their own, take a labour-only worker outside the super rules.

The contract must be with the individual. The ATO also explains that if your contract is with someone other than the person doing the work — for example, a company, trust or partnership — you do not pay super to the person providing the labour. So the same worker can be inside or outside the super rules depending on who you actually contracted with.

Example¶

Alex is a graphic designer with an ABN who invoices a small business each month. The contract is with Alex personally and is mainly for Alex's own design work, which Alex does themselves. Because the contract is wholly or principally for Alex's labour, the business treats Alex as an employee for super and pays super on the labour part of the contract — even though Alex has an ABN and sends invoices.

If instead the business had contracted with "Alex Design Pty Ltd" (a company), the super obligation to Alex personally would not arise.

Common mistakes¶

• Assuming an ABN always means no super is owed — the labour test still applies.
• Overlooking a regular labour-only contractor who works like an employee.
• Not checking who the contract is actually with — the person, or a company or trust.

How this works in myaccountant¶

Key points¶

• A contractor engaged wholly or principally for their labour is treated as an employee for super.
• An ABN and invoices do not, on their own, remove a super obligation.
• The work must be the person's own labour, done personally.
• If the contract is with a company, trust or partnership, super to the individual does not apply.
• Check the arrangement before deciding a contractor is outside the super rules.

Learn next¶

• Super for employees under 18
• Super for apprentices and trainees
• Super for working holiday makers

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