If someone works for you as a contractor, does that mean you don’t owe them the Superannuation Guarantee (SG)? Well, not necessarily
Although super payments are mostly associated with full-time employees, there are a few scenarios in which contractors are also eligible. The rules around paying SG to contractors can get complicated – not all contractors qualify as it’s less about business structure, and more about the nature of their work.
Getting this wrong can be costly. So it’s worth understanding who qualifies, and why. Here’s everything you need to know about the Superannuation Guarantee, and whether it applies to your contractors.
What is the Superannuation Guarantee?
The Superannuation Guarantee is a mandatory contribution employers make towards the super fund of eligible workers, set at a rate of 12% (as of 1 July 2025).
Most people know SG applies to employees. But under the Superannuation Guarantee (Administration) Act 1992, the obligation can extend to certain contractors as well – specifically those who are considered “deemed employees’ for super purposes.
A deemed employee is someone who, regardless of how they’re set up (if they have an ABN, if they invoice etc), is functionally working a lot like a traditional employee. There are three tests the ATO uses to assess whether or not someone is a deemed employee, and whether their employer is therefore required to pay them SG.
📖 The cadence at which SG must be paid to workers recently changed. For more information, read our explainer on Payday Super.
Is your contractor eligible for SG? The three tests
The ATO uses three main factors to determine whether a contractor qualifies for super, with the first test carrying the most weight:
1. Is the contract mainly for their labour?
This is the central question. If the bulk of what you’re paying for is a person’s time, skills, and personal effort, rather than a finished product, outcome, or the use of their equipment, then the contract is likely principally for labour.
A useful rule of thumb: if more than 50% of the value of the contract relates to the individual’s personal labour, the ATO will generally treat it as a labour contract.
For example:
- If you hire a graphic designer at an hourly rate to work on your brand materials, you’re paying for their time and expertise. They’ll likely be eligible for SG.
- If you commission a graphic designer to deliver a complete rebrand for a fixed quoted price, they’re responsible for the final outcome. They may not be eligible for SG.
2. Do they have to do the work themselves?
If the contract requires the specific individual to perform the work personally, and they don’t have a genuine contractual right to send someone else in their place, this contributes towards SG eligibility.
Worth noting: the ATO looks at what the contract actually says, not just how things played out in practice. Even if your contractor always showed up to perform the work themself, if the contract gave them the legal right to delegate, it changes the picture.
3. Are they paid for time worked, rather than a result?
How a contractor is paid matters. An hourly or daily rate (or any payment per unit of activity), is more typical of an employment arrangement, and could indicate SG eligibility.
On the other hand, a fixed fee to deliver a specific outcome, where the contractor quoted for the whole job and is responsible for fixing any defects at their own cost, tends to suggest a contract for a result, not labour.
When might super not apply to a contractor?
There are situations where SG generally won’t apply to a contractor. These include when:
The contract is with a company, trust, or partnership
If you’ve contracted with a business entity (rather than an individual directly), super obligations generally won’t apply to the individual completing the work. Note: this is on the basis that the arrangement is a genuine business-to-business relationship.
The contract is genuinely for a result
If you’ve engaged someone to deliver a specific outcome for a fixed price, and they’re responsible for their own hours, tools, and rectifying any defects, it’s generally considered a contract for a result rather than labour.
The labour is not the main part of the invoice
If a contractor is primarily supplying materials or expensive equipment, and their personal labour is a minor component of the total cost, the Super Guarantee may not be applicable.
A few other things worth knowing
The $450/month threshold no longer exists
Prior to 1 July 2022, there was a minimum earning threshold. Contractors (and employees) needed to earn at least $450 per month before SG kicked in.
That threshold was removed. If a contractor is eligible for super, contributions are now owed from the very first dollar of qualifying earnings.
Age and hours can be relevant
Super is generally owed for eligible contractors aged 18 and over, regardless of how many hours they work. For those under 18, super generally becomes payable if they work more than 30 hours in a week.
OTE is now called Qualifying Earnings (QE)
From 1 July 2026, the earnings base used to calculate super has shifted from Ordinary Time Earnings (OTE) to Qualifying Earnings (QE) under the Payday Super reforms. In most contractor scenarios this won’t change your calculation dramatically, but the terminology is different in Single Touch Payroll (STP) reporting, and it’s worth being across.
How do I calculate SG for a contractor?
Once you’ve determined that SG applies for your contractors, the next step is to calculate it.
Super is payable on the labour component of a contractor’s payment only. That means you exclude:
- GST
- The cost of materials, tools, or equipment included on their invoice
- Any portion of the invoice that isn’t for personal labour
Gina is a pharmacist, contracting for local pharmacy Neighbourhood Meds. She’s responsible for consulting with walk-in patients for a set amount of hours every week. As part of her contract, Neighbourhood Meds have agreed to reimburse her for newly-purchased equipment.
Gina sends Neighbourhood Meds an invoice for $2,200, with the following breakdown:
Labour: $1,500 Equipment: $500 GST: $200
Since Gina’s contract meets the requirements for the Superannuation Guarantee, Neighbourhood Meds calculates and pays SG based on the cost of Gina’s labour, at a rate of 12%.
$1,500 x 12% = $180 in SG.
Gina receives $2,200, and Neighbourhood Meds forwards an additional $180 to her superannuation fund.
What happens if you get it wrong?
If you don’t pay SG when you’re obligated to, you may be liable for the Super Guarantee Charge (SGC).
The SGC consists of any unpaid super, as well as interest and an additional administration component. Importantly, unlike on-time SG contributions, the SGC is not tax-deductible – much like a parking ticket or any other late fee
Under Payday Super (which came into effect 1 July 2026), contributions now need to be made every time you pay a contractor, with funds reaching their super account within 7 business days. This means outstanding super payments can accumulate faster than they did under the old quarterly system.
📖 For more on Payday Super penalties, see our dedicated explainer.
So, what next?
If you engage contractors, it’s worth reviewing your work arrangements against the ATO’s three tests for SG. The key question – “is this contract principally for labour?” – may actually get you most of the way there.
Because SG eligibility can depend on the specific terms and structure of a contract, it’s always a good idea to check your individual arrangements with a qualified tax or legal professional if you’re unsure. The information in this article is general in nature and is intended as a starting point, not personal advice.
But, once you know which of your contractors are eligible, you’ll need a reliable, cost-effective way to pay their super every payday.
That’s where we come in.
Payday Super for your contractors, sorted.
ContractorSuper by Hnry facilitates SG payments to the right super funds for your contractors (including ABN sole traders) on your behalf, accurately and on time.
You calculate super liability, complete your STP reporting, and send us one payment along with a schedule of who gets what. We take care of the rest, including allocating contributions, handling return notifications and errors, and providing you with audit-ready reporting every pay cycle.
Best of all, we’re over 50% cheaper than traditional super processing models. And as a cherry on top, if any of your contractors are already using Hnry to sort their taxes, we’ll process their super for free.
Learn more about ContractorSuper