February 23 2024

Super for contractors and subcontractors

If you’re a contractor or subcontractor, navigating your super can be a bit trickier for you than traditional employees because you’re generally in charge of managing your own super. To make things more confusing, some contractors may be eligible for the super guarantee (SG), depending on their work arrangement.
contractors and sub-contractors

As an independent contractor or subcontractor, you're your own boss. You're in charge of finding clients, negotiating contracts, and, of course, doing the work. But with all these responsibilities, it can be easy to forget about saving for retirement.

That's where super comes in. Just like self-employed people, contractors and subcontractors are responsible for managing their own super (unless they’re considered employees for SG purposes – more on this below). It might feel like an afterthought while you run your business, but paying attention to your super now can help make a big difference in your quality of life after retirement.

What’s the difference between contractors and subcontractors?

When it comes to contracting work, there are two main roles: contractors and subcontractors. Here are the key differences between the two:

  • A contractor is hired by a client to do a job.
    • Contractors are not employed by the client, but rather they are independent service providers.
  • A subcontractor is hired by a contractor to help them with a portion of the job.
    • A subcontractor is technically another contractor who isn’t hired directly by the client. A subcontractor typically works under the direction of the contractor.

Contractors and subcontractors can work in all sorts of industries. Depending on the industry, contracting work can be manual work, like building, or it can be more focused on consulting and advising.

Do contractors and subcontractors have to pay super?

As a contractor, you can choose to make voluntary contributions to your own super fund, but you don’t have to. Even though it’s not compulsory, there are some benefits of doing so:

  • Potential tax benefits - You may be able to claim a tax deduction for your voluntary super contributions. Read more on the ATO website.
  • Grow wealth for retirement - Making voluntary contributions can help build your super balance over time, which can help you become more financially secure after you retire.
  • Insurance - Insurance options offered through your super fund are often more affordable than insurance outside of super. The insurance premiums are also easy to pay as they’re deducted directly from your super balance, though this reduces your balance.
  • Flexibility - You have the freedom to choose how much and how often to contribute, as long as you don’t go over the annual cap.

Keep in mind that since contractors are self-employed, you’re typically not eligible to receive SG contributions, unless you’re considered an employee for super purposes (more on this below). If you take work on as a subcontractor, you’re generally not entitled to SG contributions, as you’re engaged through a contractor and not directly with an employer or client. 

Do I need to pay super if I’m employed through my company?

If you operate your business under a company or trust structure, you may be considered an employee for SG purposes. If so, your company needs to pay employer SG contributions to your super account. The SG rate for the 2023-24 financial year is 11% of your ordinary time earnings. These rates will change, so make sure check the ATO’s latest SG rates or chat to your financial adviser. Learn more about setting up super for your business.

Importantly, regardless of your business structure, you’ll need to pay SG contributions for any eligible workers you employ to help run your business.

Am I an employee or a contractor?

If you’re confused about the type of worker you are, the answer isn't a straightforward yes or no as it depends on a few factors.

Even if you’re labelled as a contractor by the business you work for, there are some cases where you should be considered an employee for super purposes.

To work out whether you’re an employee or contractor, the key is to look at the actual working arrangement you have with the company or person you’re doing the work for, not just the paperwork. If you’re unsure, speak with your tax accountant for advice or read more at the ATO website.

Working out if you’re an employee or a contractor is important as it can affect your tax, super and other obligations. 

Why does it matter if I’m an employee or contractor?

If you’re considered an eligible employee for super purposes, your employer must make super contributions to your account on your behalf. In other words, they must pay you super under the same rules as employees.

According to the ATO, a contractor may be considered an employee for super purposes if they:

  • are paid wholly or principally for their labour
  • perform the work personally and can’t delegate it to someone else
  • aren’t paid to achieve a specific result

If a contractor meets these conditions, they may be eligible to receive SG contributions from the business they work for, even if they:

  • have an Australian business number (ABN)
  • work in an industry where it’s common to work as a contractor
  • are labelled an ‘independent contractor’ in the agreed contract
  • are told by the business that they are a contractor
  • only work infrequently or for a short period.

As this is just a guide and everyone’s working arrangement is unique, it’s a good idea to seek advice from a professional if you’re unsure about your status.

Case study: Libby’s story

Libby’s a graphic designer who creates logos for all sorts of design and advertising firms. She has a contract with Superstar Design to work 10 hours per week, at an agreed hourly rate, and she must do the work herself. She has an ABN and sends Superstar Design a monthly invoice for her hours.

Even though she is working on a contract basis, Libby is considered an employee for super purposes because:

  • her contract is entirely for the labour and skills she provides
  • she is paid according to the number of hours she works
  • she does the work herself.

This means that Superstar Design needs to pay SG contributions for Libby in addition to her pay.

How much super should I contribute to myself as a contractor or subcontractor?

If you choose to make additional contributions to your super, the right contribution amount and even frequency will be different for every contractor.

The good news is that you can generally pay as little or as much as you like, up to:

  • an annual cap of $27,500 for concessional (or before-tax) contributions
  • an annual cap of $110,000 for non-concessional (or after-tax) contributions.

It may be a good idea to seek financial advice as the right approach will depend on what you can afford and your retirement goals. If you’re a Rest member, you can talk to a Rest Adviser and get simple advice at no extra cost.

Can I choose my own super fund as a contractor?

Yes, whether you’re a contractor who is eligible for SG contributions or are making your own contributions, you can generally choose your own super fund. If you’re entitled to receive SG contributions from the business you work for, they must offer you a superannuation standard choice form within 28 days of your start date. You can use this form to tell them where to pay your super.

Since 1 November 2021, if an employee doesn’t nominate a super fund via the superannuation standard choice form, the business must pay their super into their ‘stapled’ super fund (this is a fund that’s already linked to the employee from their previous working history). If the employee doesn’t have a stapled fund, the employer can pay the employee’s super into the employer’s default fund.

What should I do if I’m not getting paid super?

If you’re entitled to super from your employer, there are steps you can take if you’re not getting paid super. One of the first things you can do is double check if the super contribution has been made by checking your super statement, or logging in to your super account. Remember, employers are required to make super payments at least every 3 months, so there’s a possibility that the business hasn’t processed it yet.

You can also contact the person at the company who hired you or the payroll team. You might want to clarify whether they have the right super fund details or check how often they make their super payments.

If that doesn’t clear things up, you can lodge an unpaid super enquiry online with the ATO. You can also lodge an enquiry if the business you work for has paid you the wrong amount of super or skipped a payment.

Want to learn more?