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Are Subcontractors Entitled To Superannuation?

Are Subcontractors Entitled To Superannuation?

When might you have obligations to pay superannuation and how can you know?

20th November 2018

Superannuation is a vital way of making sure your future is secure. The issue arises when it comes to subcontractors and their rights to superannuation. The main steps in working out if superannuation applies is the type of relationship between the two parties and the type of work they are carrying out. Read on to find out more.

Subcontractor or contractor

Lots of labels and names fly around when it comes to contractors. There are subcontractors, contractors and independent contractors.

Contractor

There is a renovation project for your office. The firm hires a renovation company and signs a contract between the two of them. This is a typical example of what a contractor looks like. There are some important legal issues to be aware of.

Employee or contractor

A contractor can turn into an employee which means the legal and financial obligations will change. An employee normally has benefits such as sick leave. An employee might not have a contract but there may be set hours for work and they might be paid a wage. If a business operates with employees but disguises them as contractors and deprives them of entitlements they may have to go to court due to a sham contract.

Independent contractor

Independent contractors are very similar to regular contractors. An independent contractor usually runs their own business and has an ABN. They probably use their own tools and are working on multiple projects for multiple clients at any one time.

Subcontractors

A subcontractor is someone who works for another independent contractor.

Example
Mark has hired Sam to paint his house. Sam owns a painting business and he is a sole trader. Sam works for himself and has an ABN. One of Sam’s contracts is to paint a residential property making him a contractor. However, some of the work requires specialised tools and skills. As a result, he decides to outsource and hire Alissa, an independent contractor to carry out the specialised work. Alissa is a subcontractor under Sam.

Superannuation

The first step is working out the relationship. The general principle is that you should treat contractors like employees when it comes to superannuation if the following criteria apply. The next step is if the situation meets the three key criteria. There must be a contract which is mainly to do with their labour, namely the labour is worth more than 50% of the contract. The labour can be physical, mental or artistic. Finally, the contractor has to provide the work, therefore, they can’t delegate. The ATO has a tool which can help you work out if you need to pay superannuation or not.

Exceptions

If you have a contractor but the contractor isn’t providing the service but someone else will do it, then superannuation is probably not required. This would be common when companies, trusts or partnerships are involved. When a contractor hires another contractor if they meet the criteria then the first contractor may have to pay the subcontractor superannuation. The best method for working out if superannuation applies is to check with the ATO tool and confirm it with an employment lawyer. It’s better to be cautious than being liable for missed superannuation penalties.

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Author
Justin Pasqualino

Justin is a legal intern at Lawpath as part of the content team. He is currently studying a Bachelor of Laws and a Bachelor of Economics at UTS.