Do I Need to Pay Super for Contractors? A Simple Guide for Business Owners

When it comes to paying superannuation, most business owners feel confident about employees. But what about contractors? The rules can get complex, and misunderstandings could expose your business to penalties even if the contractor has an ABN.

When Are Contractors Entitled to Super?

The ATO says that some contractors must be treated like employees for super purposes. This usually applies when:

• The contract is mostly for the contractor’s personal labour

• The contractor is paid by the hour, not per project

• The contractor is a natural person (not a company, trust, or partnership)

• The work must be done by them—they can’t delegate it

  
  

Tip: If a contractor meets these criteria, you’re likely required to pay super even if they invoice you and even if they have an ABN.

Examples You Can Relate To

You do need to pay super:

• You hire a freelancer, Amanda, to do admin work 15 hours a week. She has an ABN and invoices you weekly based on hours worked. She does the work herself and can't subcontract it.

  → Yes, super applies.

  
  

You don’t need to pay super:

• You engage Pete’s Painting to repaint your office. He quotes a fixed price and sends one of his team to do the job.

  → No super required.

Common Myths About Contractor Super

Myth 1: “If they have an ABN, I don’t need to pay super.”

Fact: If the contract is mainly for their labour, super might still apply.

Myth 2: “They invoice me with super added, so they’re handling it.”

Fact: Super must be paid by you directly to their super fund. It cannot be included in their pay or invoice.

How Much Super Do I Pay?

The current super guaranteed rate is 11.5% of the contractor’s labour portion (excluding GST and materials).

Example:

If a contractor invoices you $2,200 for 20 hours of labour + GST, you pay:

$2,000 × 11.5% = $230 in super

(GST is excluded from super calculations)

What Happens If You Don’t Pay?

Missing super for contractors can result in:

• A superannuation guarantee charge (SGC)

• Interest, admin fees, and ATO penalties

• Possible personal liability for directors

  
  

Avoiding these outcomes is simple—get the classification right early and pay super on time.

Exceptions to Know

You don’t need to pay super if the contractor:

• Is under 18 and works less than 30 hours a week

• Works as a domestic worker for fewer than 30 hours a week

• Operates through a company, trust, or partnership

  
  

Choice of Fund and Stapled Super Still Apply

If your contractor qualifies for super:

• You must offer a choice of fund within 28 days

• If they don’t choose, you must request their stapled super fund via the ATO

• If no stapled fund exists, you’ll use your business’s default fund

How to Handle Super for Contractors in Xero, MYOB, etc.

There are two main approaches:

1. Payroll method:

Set them up like a pseudo-employee to automate super. Good for ongoing engagements but can require advanced setup.

2. Payables method:

Create a separate invoice for the SG amount to their super fund. Keeps records clear and aligns with BAS reporting.

We recommend using a separate account like “Superannuation – Contractors” for easier tracking.

Working out super for contractors can be tricky—it often depends on the details of your agreement and how the work is set up.

At Vivid Enterprise Solutions, we can review your contractor arrangements, confirm if super is required, and ensure everything is recorded correctly. Book a quick call with us to keep things simple and compliant.

Disclaimer: This article is intended to provide general guidance and is not specific advice. We encourage you to seek tailored advice for your circumstances.