The rise of the gig economy is changing the nature of work, making task-by-task or contract-to-contract self-employment increasingly common.
This shift in working is great news for small businesses, who can use contractors and freelancers to increase staff numbers when times are busy, without paying to have these extra staff permanently on the books.
Research has found however that an estimated 326,000 Australians who work in the gig economy are not correctly receiving their superannuation guarantee payments. So if you use consultants, contractors and freelancers from time to time, it’s important that you understand what your obligations are to make sure you are doing the right thing.
Contractor vs employee
The line between employee and contractor can be a fine one, especially when it comes to people who are operating as sole traders.
There are six factors that, considered together, the Australian Taxation Office (ATO) uses to determine whether a worker is an employee or a contractor for tax and super purposes. Even if they have their own Australian business number (ABN) a worker is more likely to be classified as an employee if:
- They can’t delegate or sub-contract out the work by paying someone else to do it.
- They are paid for the time worked, a price per item or activity, or a commission.
- Your business provides all or most of the equipment, tools or assets they use, or provides an allowance or reimburses them for the cost of purchasing these equipment, tools and assets.
- Your business, not the worker, is legally responsible for the work done and rectifying any defects in the work.
- Your business has the right to direct the way in which the worker does the work.
- They are not operating independently of your business; they are not free to accept other work.
If your workers meet all six factors above, they may be viewed as an employee and you may be required to pay them super. This depends on whether they’re aged 18 or over, and are being paid $450 or more before tax in a month. If your employee is under 18, or is a private or domestic worker, they must also work more than 30 hours per week to qualify. In this case, you must pay the super guarantee rate of 9.5% of their ordinary time earnings into their super fund.
If you’re still unsure whether you need to pay super for your gig workers, the ATO’s employee/contractor decision tool can help.
Start the conversation
Even if your workers aren’t classified as employees and you don’t need to pay them super, it can often help them to start the super conversation. With many Australians increasingly reliant on super to fund their retirement, it may benefit them in the long term to know what super options they have.