Super and payroll tax for contractors
Do you need to pay superannuation and payroll tax for contractors? The short answer is: probably. The longer answer is below.
Over the last few years, the Australian Taxation Office (ATO) has been tightening up the rules around super and payroll tax for contractors.
This is mainly to avoid employers from ‘contracting out’ work to avoid employee obligations.
This article will help you understand what that means. But first please remember, this is not personal tax or financial advice (you need to speak to us for that).
Employee or contractor – how can you tell?
To you, it’s probably clear who is an employee and who is a contractor. You might have some people on employee agreements and some on contractor agreements.
But in the eyes of the ATO, it’s not that clear cut. The ATO can still deem someone to be an employee – for superannuation purposes – even if they have a contractor agreement with you and their own ABN and/or GST registration.
Superannuation for contractors
In short: If you pay contractors mainly for their labour, they are seen as ’employees’ for superannuation guarantee (SG) purposes. If you pay contractors to deliver an outcome (e.g. sales), you shouldn’t need to pay super for them.
In more detail: you will need to pay super for individual/sole trader contractors if you pay them:
- Under a verbal or written contract that is mainly for their labour (more than half the dollar value of the contract is for their labour)
- For their personal labour and skills (payment isn’t dependent on achieving a specified result, such as sales)
- To perform the contract work (meaning they can’t delegate it to someone else)
If you have a contract agreement with a company, trust or partnership, you do not have to pay super for the person they employ to do the work.
If you need more help, try this ATO tool to work out if a contractor is entitled to super guarantee contributions.
Payroll tax for contractors
Each state/territory in Australia has different criteria for reporting contractors for payroll tax. But in general, you should expect to pay payroll tax for your contractors.
And unlike the superannuation rules outlined above, it doesn’t matter whether you’re paying the contractor for their labour or for a specific outcome. Either way, you will likely need to include all their costs in your payroll tax lodgments.
- ATO guidance on employees and contractors (how to tell the difference)
- ATO guidance on super for contractors
- Our general payroll tax FAQ
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