Employer’s guide to Superannuation Guarantee (SG) contributions

You must make super contributions for independent contractors if you pay them:

• Under a verbal or written contract that is mainly for their labour (more than half the dollar value of the contract is for labour)
• For their personal labour and skills (payment is not dependent on achieving a result)
• To perform the contract work themselves (they can’t subcontract the work to another person).

If you enter into a contract with a company, trust or partnership, you do not have to pay super for the person it employs to do the work.

Not sure if you need to pay super for a contractor? Check the Australian Taxation Office (ATO) page for more information and examples.

If you’re self-employed as a sole trader or in a partnership, you don’t have to pay super for yourself. If you’ve set up a company, all the company’s employees are entitled to super, including you.

You need to pay super for your staff even if they are family members, company directors or temporary residents in Australia.

Some limited exceptions apply for employees working overseas and foreign executives holding specific visas.

Employees with high income and more than one employer may supply you with an exemption certificate to opt out of SG contributions. If you receive an SG exemption certificate, you are not required to pay SG contributions for that employee during the financial year covered by the certificate. You must start paying SG contributions again in the new financial year, unless you receive another certificate covering that period.

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How much to pay

The required SG contribution is 12% of the worker’s qualifying earnings.

Qualifying earnings include:

• Ordinary time earnings (OTE), i.e. payments for ordinary hours of work (not overtime). OTE includes some types of paid leave, allowances, bonuses and lump sum payments
• All commissions
• Salary-sacrifice amounts that would be qualifying earnings had they not been sacrificed to super
• Earnings paid to workers who fall under the expanded definition of employee, including independent contractors paid mainly for their labour.

If you employ a contractor mainly for their labour, an SG contribution is payable on the portion of the contract related to that labour. You don’t need to pay super on any portion related to parts/materials or GST.

Maximum super contributions

To ensure employees don’t exceed the annual concessional contribution cap because of SG contributions, a limit is placed on the amount you must pay per year for each worker.

Once an employee’s income reaches the maximum super contribution base (MSCB) for the financial year, you can stop paying SG contributions until the following 1 July.

The MSCB is calculated by multiplying the concessional contribution cap by 100 and dividing by 12 (the current SG percentage), then rounding down to the nearest $10.

Paying on time

To be on time, your contributions must be received by your employee’s super fund, with all the information required to allocate them to the destination account, by the end of the relevant period.

The usual period is seven business days after payday.

An extended period applies to the first payday for a new employee and the next payday after an employee asks you to contribute to a different super fund.

The extended period is 20 business days after payday. If the end of the usual period for a payday occurs before the end of the extended period that applies to a prior payday, contributions for the following payday are due on the same date as the first.

The extended period applies to new staff even if they have worked in your business before.

Yes, it’s confusing, but the example below should help clarify.

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Exceptions to usual deadlines

Out-of-cycle payments

When you make a payment to an employee on a day other than their usual payday, your SG contribution must be received by the fund within seven business days after their next regular payday.

If the employee won’t have any following paydays, your contribution for the out-of-cycle payment is due within seven business days.

Exceptional circumstances

If a situation occurs that is likely to impact the ability of a group of employers to meet their contribution deadlines, the ATO may issue an exceptional circumstance determination to grant an extension.

The ATO is most likely to do this for natural disasters or widespread, prolonged electricity/internet outages.

If an exceptional circumstances determination covers you and your current payday, SG contributions are due on the later of:

• 20 business days after payday
• 20 business days after the determination was made.

Contributions for paydays that fall after the exceptional circumstances determination expires are due on the later of:

• The due date for the last payday covered by the determination
• The usual due date for that payday.

How to make your payments

Employer super contributions (including SG contributions) must be sent to super funds electronically, along with supporting data in the correct format.

Contributions and data must be sent on the same day.

Check with your payroll provider to find out if their solution offers a built-in super contribution service (most do). If your payroll software doesn’t meet your needs, you can use a super fund’s employer hub or a super clearing house to facilitate your payments.

You make one payment to cover all your contributions. Your provider will then distribute the money to all your destination super funds, with the supporting data. Super funds are set up to accept payments via the New Payments Platform (PayID and OSKO), supporting instant transfers.

Your accountant or bookkeeper can help you select payroll software or a super clearing house if you’re not sure which will best suit your business.

Sending contributions to the correct fund

Most employees can choose the super fund they want you to contribute to.

If an employee hasn’t chosen a fund, you should contribute to their stapled fund or your default fund. A stapled super fund is an existing super account linked, or ‘stapled’, to an individual employee so it follows them as they change jobs.

Use your default fund if the employee started work before 1 November 2021 or doesn’t have a stapled fund. In all other cases, use the employee’s stapled fund.

If your SG contribution to an employee’s chosen super fund or stapled fund is rejected and the worker can’t provide you with corrected membership details before your contribution deadline, you should send the amount to your default fund. The ATO prioritises on-time contributions.

Penalties for non-compliance

If you fail to pay SG contributions, pay the wrong super fund or don’t pay on time, the ATO will issue you with an SG charge statement.

The SG charge includes any contributions that remain unpaid on the date of assessment, interest for late amounts, a choice penalty for any contributions paid to the incorrect fund and an administrative penalty.

The ATO will reduce the administrative penalty if you voluntarily disclose the problem to them, and the earlier you do so, the bigger your discount.