Your tax and super obligations are different depending on whether your worker is an employee or a contractor.
Employees work in your business and are part of your business.
Contractors run their own business and provide services to your business.
Just because a worker has an ABN does not mean they will be a contractor for every job or working arrangement. The specific terms and conditions under which the work is performed need to be considered to determine whether the worker is an employee or contractor.
As an employer, the most common types of payments you need to withhold tax from include:
• employee wages, salary, commissions, allowances and bonuses
• payments to company directors and company office holders
• payments to individuals under labour-hire arrangements
• employment termination payments or compensation payments
• sickness or accident payments
• payments to contractors who have a voluntary agreement with you
• payments to contractors who do not provide an Australian business number (ABN).
You must pay a minimum of 9.25% of each eligible worker’s ordinary time earnings each quarter.
For super guarantee purposes, your workers include your employees and any contractors you engage wholly or principally for their labour.
Ordinary time earnings (OTE) is usually the amount your employee earns for their ordinary hours of work. It includes things like commissions, shift loadings and allowances, but doesn’t include overtime payments.
For contractors, use the labour component of their contract as the basis for their OTE.
Super is calculated quarterly – that is, every three months. For each of your eligible workers:
multiply their ordinary time earnings for the quarter by 9.25%
pay this amount to a complying super fund or retirement savings account by the quarterly cut-off date.
If you back-pay salary or wages to a former employee you have to pay super contributions on that back pay.
You can claim a full tax deduction for super payments you make for employees by the cut-off date.
You must make super contributions for an employee if you’re considered an employer for super guarantee purposes and your employee is entitled to the super guarantee.
You’re an employer for super guarantee purposes if you employ a person under a verbal or written employment contract on a full-time, part-time or casual basis.
Generally, you have to pay super for an employee if they’re 18 years old or over and you pay them $450 or more (before tax) in salary or wages in a month. It doesn’t matter whether the employee is full time, part time or casual.
Employees who are under 18 years old must meet the above conditions and work at least 30 hours to be entitled to super guarantee.
Super for the self-employed
If you’re a sole trader or a partner in a partnership you don’t have to make super contributions to a super fund for yourself, but you might want to make super contributions anyway to save for your retirement. You may be able to claim a full deduction for your super contributions and may be eligible for matching co-contributions from the government.
If you pay an individual under a contract that is wholly or principally for their labour, and you pay them for hours worked rather than to achieve a result, you have to pay super contributions for them.