The superannuation guarantee (SG) legislation’s reach can extend beyond traditional employment relationships to include company directors, contractors, and other workers who might not qualify as employees under common law definitions. Understanding these nuanced obligations is crucial for employers, as the ATO can pursue unpaid SG contributions indefinitely, with potentially severe financial consequences for non-compliance.
Understanding Your Obligations
The superannuation guarantee (SG) rules have a broad reach and can apply beyond traditional employee relationships. In some cases, the rules extend to company directors, contractors, and other workers who may not be considered employees under common law.
Employers must pay compulsory SG contributions for individuals deemed employees under the SG legislation. However, the definition of an “employee” for SG purposes is wider than the common law interpretation. This expanded definition has recently prompted debate around the entitlements of non-traditional workers, and other freelancers.
If there is any uncertainty about whether a worker qualifies for SG contributions, it’s critical to clarify your position. This may involve an internal assessment, advice from an employment lawyer, or obtaining an ATO private ruling for your specific arrangements. It’s important to note that the ATO can pursue unpaid SG contributions indefinitely, with no fixed time limit on recovery. This makes it all the more essential to ensure your SG obligations are being met.
The SG system is designed to guarantee that employees—and those deemed employees—receive super contributions to support their retirement. The SG legislation, along with the director penalty regime, reinforces that every dollar owed to an employee must be paid.
Who Doesn’t Qualify for SG?
You are generally not required to pay SG contributions to:
- Employees under 18 years of age who work fewer than 30 hours per week
- Private/domestic workers who work fewer than 30 hours per week
- Non-resident employees performing work outside Australia
- Employees temporarily working in Australia under certain agreements
- Specific foreign executives holding certain visas or permits
- Contractors engaged through a company, trust, or partnership structure
If your Australian employees are temporarily working in a country with a bilateral social security agreement (e.g. the U.S.), SG payments should continue. You can apply for a certificate of coverage to avoid paying superannuation or its equivalent in the host country.
Expanded Definition of ‘Employee’ under SG Law
Section 12 of the SG Act extends the definition of an employee to include:
- Company directors receiving remuneration for their duties
- Contractors engaged under contracts primarily for their personal labour
- Certain Commonwealth and State government workers under contract
Are Contractors Entitled to Super?
Even if a contractor has an Australian Business Number (ABN), this doesn’t automatically exempt you from paying SG. If the agreement is principally for their personal labour and skills, and the work cannot be delegated, the contractor may be considered an employee for SG purposes.
The ATO provides guidance, stating SG is payable if a contractor is:
- Engaged under a contract (verbal or written) mainly for their labour (i.e. more than half of the value is for their labour)
- Paid for their personal labour and skills (not outcome-based)
- Required to perform the work themselves (cannot delegate the task)
If the contractor uses a significant capital asset (e.g. a truck), this could suggest the contract is not primarily for their labour. However, this will depend on the specific circumstances.
Do Directors Receive SG?
Yes. Directors who are remunerated for their role are entitled to SG contributions, just like employees.
Meeting SG payment due date obligations
Understanding these nuanced obligations is crucial for employers, as when quarterly payment due dates fall on weekends or public holidays, contributions must be received by the fund on or before the next business day, with missed or late payments requiring a Superannuation Guarantee Charge (SGC) statement and rendering these payments non-tax deductible, unlike timely contributions which remain fully deductible.
Unsure About Your SG Obligations?
If you’re uncertain about your superannuation obligations or whether specific workers should be receiving SG, it’s wise to act early. Contact us for an initial tax review of your arrangements.
