Superannuation for Contractors: What Businesses Need to Know

What actually changed

There have been several changes around contractor classification and superannuation, but they should not be treated as one single new test.

The ATO's TR 2023/4 was originally issued in December 2023. The long-standing Superannuation Guarantee Ruling SGR 2005/1 was then withdrawn with effect from 26 June 2024, and the ATO's updated superannuation guidance was incorporated into Appendix 2 of TR 2023/4.

Separately, from 26 August 2024 the Fair Work Act introduced a whole-of-relationship test for many constitutionally covered businesses. That test looks at the real substance, practical reality and true nature of a working relationship, including how the contract operates in practice.

These frameworks serve different legal purposes. The Fair Work test does not determine whether superannuation guarantee is payable, and Fair Work expressly notes that its new definition does not change the meaning of employee in tax or superannuation laws.

When can superannuation apply to a contractor?

For superannuation guarantee purposes, the law has an extended meaning of employee. The ATO says super may be required where an independent contractor is paid:

• under a contract that is mainly for their labour, which the ATO describes as more than half the dollar value of the contract being for labour;
• for their personal labour and skills, rather than being paid to achieve a specified result; and
• to perform the work personally, where the work cannot genuinely be delegated to someone else.

That extended test is important where there is no ordinary employer-employee relationship. A worker can also be an employee under the ordinary meaning of the word, so the extended labour test is not the only way superannuation obligations can arise.

An ABN and a contractor agreement do not decide the issue

The ATO states that it does not matter, for this purpose, whether the independent contractor has an Australian Business Number.

A written agreement is still important because it records the legal rights and obligations between the parties. But calling someone a contractor does not, by itself, prevent the superannuation guarantee rules from applying if the substance of the contract falls within the employee definitions in the superannuation legislation.

Contracts for a result

A genuine contract to produce a specified result is different from a contract that is principally for a person's labour. The ATO says a results contract is one where the essence of the bargain is achieving the specified result, rather than simply doing work.

Payment method can help reveal the nature of the arrangement. Hourly or daily payment may point toward payment for labour, while an agreed price for completing a defined outcome may point toward a results contract. No single label or invoice description is decisive on its own.

Delegation and subcontracting rights need to be genuine

A genuine contractual right to delegate, subcontract or assign the work can be highly significant. TR 2023/4 states that, for the extended superannuation definition, it is the existence of the right that matters, not whether the contractor has actually exercised it.

That does not mean any delegation clause will work. The ATO qualifies its position where the purported right is a sham, is so limited that it is not a meaningful delegation right, or is legally incapable of being exercised.

What if the contract includes labour, materials or equipment?

The ATO describes a contract as mainly for labour where more than half of its dollar value is for the person's labour. Materials and equipment can therefore matter when determining whether the extended labour test applies.

However, simply splitting an invoice into labour and non-labour line items does not automatically determine the legal character of the contract. The arrangement still needs to be considered as a whole.

Where a contractor is an employee for superannuation guarantee purposes, the ATO says the minimum super is calculated on the relevant labour component of the contract. Contract payments for materials and equipment, GST, and overtime paid at overtime rates are not included in that labour component.

The Fair Work Act's employee test is separate

From 26 August 2024, constitutionally covered businesses generally use the Fair Work Act's whole-of-relationship test to work out whether a worker is an employee or an independent contractor.

The test considers the real substance, practical reality and true nature of the relationship. It looks at the totality of the relationship, including the contract and how the arrangement is performed in practice. Relevant factors can include control, financial risk, tools and equipment, the ability to delegate or subcontract, hours of work, and whether there is an expectation of continuing work.

The test does not apply in exactly the same way to every Australian business. Some state-referred businesses continue to use the start-of-relationship test, so businesses should confirm which Fair Work classification test applies to them.

Most importantly for this guide, Fair Work expressly states that its new employee definition does not change the meaning of employee in other laws, including superannuation and tax legislation.

Payment timing also changed from 1 July 2026

For a worker who is entitled to superannuation guarantee, the timing rules changed again from 1 July 2026 under Payday Super.

The ATO says superannuation guarantee is now calculated at the current 12% rate on qualifying earnings and paid in connection with each payday. In general, the contribution must reach the worker's super fund within seven business days after payday, subject to applicable exceptions.

This change affects when super must be paid. It does not change the underlying question of whether a contractor is an employee for superannuation guarantee purposes.

What businesses engaging contractors should review

Businesses that engage individual contractors directly should review arrangements that have one or more of the following features:

• the contractor is paid primarily for their own time and skill;
• hourly, daily, commission or similar labour-based payment is used;
• the individual is expected to perform the work personally;
• there is no genuine ability to delegate or subcontract the work;
• the contractor has worked for the business on an ongoing basis;
• the written agreement and the way the relationship operates in practice do not align; or
• the business has historically assumed an ABN or contractor agreement was sufficient to remove superannuation risk.

Classification is fact-sensitive. Businesses with material exposure should obtain advice on the actual contracts and operating practices rather than relying on a generic checklist.

How ContractRight Managed Contracting differs from direct engagement

ContractRight's Managed Contracting framework uses a three-party structure. The contractor's contractual engagement is with ContractRight, while the client business receives the services under a separate commercial arrangement.

This is structurally different from a business directly engaging an individual contractor under its own contractor agreement. The purpose of the framework is to separate the contractor engagement and compliance administration from the client business's operational use of the services.

Whether any arrangement satisfies applicable workplace, taxation and superannuation laws depends on its legal terms and practical operation. ContractRight assesses proposed engagements before onboarding rather than treating the framework as a generic template.

Request a Contractor Compliance Review

Official sources

This guide has been reviewed against the following official sources. The source material should be checked again when making a decision because legislation and regulator guidance can change.

• Australian Taxation Office: Super for independent contractors
• Australian Taxation Office: TR 2023/4, Income tax and superannuation guarantee: who is an employee?
• Fair Work Ombudsman: Independent contractors
• Fair Work Ombudsman: Whole of relationship test
• Australian Taxation Office: Payday Super