The basics of setting up a start-up
Superannuation can be quite complicated. In essence employers must pay 9.5% of each eligible worker’s ordinary time earnings each quarter. According to the Australian Tax Office, 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, the labour component of their contract is the basis for their OTE and it is when contractors are thrown in the mix that things become complicated.
 
The ATO states that if you pay your contractors under a contract that is wholly or principally for labour, you are required to pay super contributions for them, even if the contractor quotes an Australian Business Number (ABN). These contractors are your employees and you must treat them as such, regardless of the service they are providing.
 
When do I pay Superannuation?
If an employee earns $450 or more (before tax) in a calendar month, you have to pay a super guarantee on top of their wages.
If your employee is under 18 or is a private or domestic worker they must work a minimum of 30 hours to qualify for superannuation payments.
 
You are required to pay super regardless of whether the employee:

  • is full-time, part-time or casual
  • receives a super pension or annuity while still working – including those who qualify for the transition-to-retirement measure
  • is a temporary resident – when they leave Australia, they are entitled to the payments you made through a ‘departing Australia superannuation payment’ claim
  • is a company director
  • is a family member working in your business – provided they are eligible for a super guarantee (SG)

 
When not to pay Superannuation
Those who are not eligible for a SG include:

  • non-resident employees you pay for work they do outside Australia
  • some foreign executives who hold certain visas or entry permits
  • employees paid under the Community Development Employment Program
  • members of the army, naval or air force reserves for work carried out in that role
  • employees temporarily working in Australia who are covered by a bilateral super agreement.

You must keep a copy of the employee’s certificate of coverage to verify the exemption.
 
If you’re a non-resident employer, you don’t have to pay a SG for resident employees for work they do outside Australia.
 
It is important to understand who is eligible for super and who is not. The ATO offers an employee/contractor decision tool to help you work out your requirements. It is worth checking out at https://www.ato.gov.au/Calculators-and-tools/Employee-or-contractor/