Employees vs Contractors – Part 3

There is a widespread misconception that employers do not need to pay superannuation guarantee contributions (SGC) for contractors.

However, according to the ATO, if the payments to contractors are principally for the labour of the contractors, the employers are still liable for the SGC. Contract for labour does not only include physical labour (i.e. construction working) but also includes mental effort (i.e. IT consulting)

The following two situations are not contract for labour according to the ATO.

  1. If the contractor meets the delegation test as we have discussed in Part 1 of “Employees vs Contractors”, there is no SGC obligations for the employers.
  2. If the contractors are engaged through an interposed entity (i.e. company, trust or partnership), there is no SGC obligations for the employers.

It should be noted that ATO’s position in point 2 has been challenged in High court, however, there is no decision impact statement released yet.