"They've got an ABN, so I don't pay super" is one of the most expensive sentences in Australian small business. An ABN changes how a worker is paid; it does not decide whether super is owed. This guide sets out the actual rules — the test the ATO applies, who is genuinely exempt, how the 12% is calculated (and why GST is left out), the Payday Super deadlines, what late payment costs, and who cannot lawfully be put on an ABN at all.
The three-part test
Section 12(3) of the Superannuation Guarantee (Administration) Act extends "employee" to anyone who works under a contract that is wholly or principally for their labour. The ATO applies it as three questions. If the answer to all three is yes, you pay super:
- Is the contract mainly for their labour? More than half of the contract's value is for the person's work and skills, rather than for materials, equipment or other things they supply.
- Are they paid for their personal labour and skills? Payment depends on the hours or effort they put in, not on achieving a specified result. A fixed price for a finished job points the other way; an hourly or daily rate points this way.
- Must they do the work personally? If they are not free to delegate or subcontract the work to someone else, this limb is met.
The ATO's own example is a freelance administrator on an ABN who invoices by the hour and must do the work herself: an employee for super purposes. The ATO's ruling TR 2023/4 sets out the full position, applying the High Court's 2022 decisions in Personnel Contracting and Jamsek: what matters is the legal rights and obligations in the contract — written, verbal or implied — not the label on it.
When super is not payable
No super guarantee
- Your contract is with a company, trust or partnership — the entity is responsible for its own workers.
- The contractor is engaged for a result at a quoted price, is free to delegate, supplies substantial equipment and carries the commercial risk.
- Private or domestic work for you personally (a nanny, cleaner or carer at home) of 30 hours or less in a week.
- Workers under 18 who work 30 hours or less in a week.
- Yourself, as a sole trader or partner.
Super guarantee applies
- Labour-only contractors on hourly or daily rates who do the work themselves — ABN or not.
- Apprentices, trainees, labourers and trades assistants — the ATO treats these as always employees.
- Anyone paid under a contract that is "wholly or principally for labour", from the first dollar — the $450-a-month threshold ended on 1 July 2022.
- Company directors paid for their services.
Note the trap in the first point: a sole trader who contracts to repaint your office for $8,000, buys the paint, can bring in a mate to help and must fix any defects is a genuine contractor. The same person paid $45 an hour to paint whatever you point them at, using your materials, is an employee for super — whichever of them holds an ABN.
How much: 12% of the labour component, excluding GST
Super guarantee is 12% of the contractor's earnings base, and for contractors that base is the labour component of what you pay. The ATO is explicit that you do not include contract payments for materials, equipment or other non-labour items — and you do not include GST.
| Item | Amount |
|---|---|
| Invoice total (GST-inclusive) | $5,500 |
| Less GST (÷ 11) | $500 |
| Labour component | $5,000 |
| Super guarantee at 12% | $600 paid to their fund, in addition to the invoice |
If an invoice bundles labour with materials and doesn't split them, you must work out a reasonable market value for the labour, consistent with normal industry practice, and keep a record of how you did it. Super is capped at the maximum contribution base — $270,830 of earnings for 2026–27 (for 2025–26 it was $62,500 per quarter). Under Payday Super the base for contractors includes commissions, overtime and any amounts they salary-sacrifice. Our super calculator does the arithmetic.
When: Payday Super deadlines
Since 1 July 2026, super must be paid at the same time as the worker is paid and must be received by the fund within seven business days of payday. The first contribution for a new worker, or to a newly nominated fund, gets 20 business days. Quarterly payment is gone, and so is the ATO's Small Business Superannuation Clearing House — contributions go through your payroll software or a commercial clearing house. For earnings paid up to 30 June 2026 the old quarterly due dates applied: 28 October, 28 January, 28 April and 28 July.
Practically, this means a contractor's super has to be set up before their first invoice is paid: offer them the standard choice form, request their stapled fund from the ATO if they don't nominate one, and load the fund into payroll alongside their bank details. Our Payday Super guide covers the payroll changes in detail.
What late or missed super costs
| Period | Super guarantee charge |
|---|---|
| Paydays from 1 July 2026 | Assessed by the ATO: the shortfall, plus notional earnings compounding daily at the general interest charge rate, plus an administrative uplift (reduced if you disclose voluntarily), plus a choice loading if you ignored the worker's fund choice. Penalties of 25% (late disclosure) or 50% (no disclosure). The charge is tax deductible. |
| Quarters to 30 June 2026 | Shortfall (calculated on all salary and wages, including overtime) plus nominal interest at 10% a year from the start of the quarter plus $20 per worker per quarter. Not tax deductible. Part 7 penalty of up to 200% for failing to lodge the SG statement. |
The charge applies whether you forgot, miscalculated, or decided the worker was a contractor and were wrong. Directors can be made personally liable for unpaid super guarantee charge through a director penalty notice.
"I'll just pay them extra instead"
Two shortcuts both fail. Paying the contractor an extra 12% in cash on top of their rate is not a super contribution — the ATO says so directly — and leaves you liable for the full charge on top. Writing "rate is inclusive of superannuation" into the contract has the same result: the obligation is yours and is only discharged by money arriving in the fund. The only safe approach for a labour-only contractor is to pay their super to their fund, and say so in the contract.
Who can't be put on an ABN
The Australian Business Register issues ABNs to people carrying on an enterprise. Its guidance is blunt: you are not entitled to an ABN for work you do as an employee, and an employer should not ask you to get one as a condition of a job. Apprentices, trade assistants and labourers are the examples it gives.
Under the Fair Work Act, telling a worker who is really an employee that they are a contractor — or dismissing someone to re-engage them on an ABN doing the same work — is sham contracting (sections 357 to 359). Since February 2024 the only defence is that the business reasonably believed the worker was a contractor. Penalties per contravention are up to $21,840 for an individual, $109,200 for a business with fewer than 15 employees and $546,000 for larger businesses, on top of back-pay, leave entitlements and super.
Signs that the ATO and the Fair Work Ombudsman say do not make someone a contractor: they have an ABN; they have a business name; they invoice you; the contract calls them a contractor; they asked to be a contractor; "everyone in the industry does it"; they only work for short periods. A worker who turns up to set hours, under your direction, using your equipment, paid by the hour and unable to send a replacement is an employee — put them on the payroll with PAYG withholding, leave and super. Our contractor or employee guide walks through the indicators.
The 2024 Fair Work change — and why it doesn't change super
From 26 August 2024 the Fair Work Act decides employee status by the "real substance, practical reality and true nature" of the relationship, including how it works day to day, not just the contract's words. That governs award pay, leave and unfair dismissal. Tax and super still use the superannuation guarantee tests and TR 2023/4, which look at the contractual rights and obligations. The two can give different answers for the same worker, so a business needs to clear both.
Contractors: your own super
If you are the contractor and no one is paying super for you, nothing is compulsory. You can contribute to your own fund and claim the contribution as a deduction, within the $32,500 concessional cap for 2026–27, by lodging a notice of intent to claim a deduction with the fund before you lodge your tax return (and before the end of the following income year at the latest). The sole trader tax calculator shows the tax effect of a contribution.
The other obligations that travel with contractors
- Choice of fund and stapled funds — offer the standard choice form within 28 days; request the stapled fund from the ATO if no choice is made.
- No ABN quoted — withhold 47% from the payment unless an exception applies (for example a statement by a supplier for hobby or private sales).
- PAYG voluntary agreement — an individual contractor can agree to have tax withheld at the ATO's instalment rate or a flat 20%, which stops large year-end bills.
- Taxable Payments Annual Report — due 28 August each year if you pay contractors in building and construction, cleaning, courier or road freight, IT, or security. See our TPAR guide.
- State payroll tax — Victoria and other states deem many contractor payments to be wages under "relevant contract" provisions unless an exemption (such as the 90-day rule or services to the public) applies.
- WorkCover — sole-trader contractors who work like employees are often "workers" for workers compensation and must be included in your remuneration declaration.
Sources
- ATO — Super for independent contractors
- ATO — Work out if you have to pay super
- ATO — Difference between employees and independent contractors and Myths and facts
- ATO — TR 2023/4 — who is an employee?
- ATO — Super guarantee rates and maximum contribution base
- ATO — About Payday Super and What happens if you don't pay super correctly
- ATO — The super guarantee charge (quarters to 30 June 2026)
- ABR — ABN entitlement
- Fair Work Ombudsman — Sham contracting and Independent contractor changes
- ATO — Super for sole traders and partnerships; SRO Victoria — contractors and payroll tax
General information only, current at 27-10-2026. It does not take your circumstances into account and is not legal, tax or financial product advice. Worker classification turns on the facts of each engagement — get advice before you rely on it.
Frequently asked questions
Do I have to pay super to a contractor who has an ABN?
Often, yes. If the contract is wholly or principally for the person's labour — more than half its value is for their personal work and skills, they are paid for hours or effort rather than a result, and they can't send someone else — the superannuation guarantee law treats them as your employee for super purposes. Having an ABN, invoicing you and being called a contractor make no difference.
Is super payable on the GST-inclusive invoice total?
No. Super is calculated on the labour component of the payment only, excluding GST and excluding amounts for materials, equipment or other non-labour items. On a $5,500 invoice that is $5,000 plus GST for labour only, super guarantee is 12% of $5,000 — $600. If the invoice doesn't split labour from materials, use a reasonable, documented market value for the labour.
What if I contract a company, trust or partnership?
Then your contract is with the entity, not the individual, and you have no super guarantee obligation for the people it sends. That entity is responsible for super for its own workers. The exception the ATO watches for is a 'company' that is really just one person doing employee work under your direction — substance matters, not the label.
Is there a minimum amount before super applies?
No. The old $450-a-month threshold was removed on 1 July 2022. Super is payable on the first dollar, up to the maximum contribution base. The only hours tests left are for workers under 18 and for private or domestic workers (a nanny or carer you engage personally), who must work more than 30 hours in a week before super is payable.
How much super do I pay a contractor?
12% of the labour component of what you pay them, capped at the maximum contribution base — $270,830 of earnings for the 2026–27 year ($62,500 per quarter for 2025–26). Under Payday Super, commissions, overtime and any salary-sacrificed amounts are included in the base for contractors.
When does the super have to be paid?
Since 1 July 2026 (Payday Super) each contribution must be received by the worker's fund within seven business days of the day you pay them — 20 business days for the first payment for a new worker or a new fund. For periods up to 30 June 2026 the old quarterly deadlines applied: 28 October, 28 January, 28 April and 28 July.
Can I add 12% to the contractor's rate instead of paying super?
No. Paying extra cash to the contractor, or writing 'rate includes super' in the contract, does not satisfy the obligation. The contribution must actually be paid into the contractor's super fund by the deadline. If it isn't, you are liable for the super guarantee charge even though you paid the money out.
Can the contractor agree not to receive super?
No. Super guarantee is the payer's statutory obligation and cannot be waived by the worker, by a contract clause, by industry custom or by the worker's preference to be treated as a contractor. The ATO lists all of these among the common myths.
What happens if I pay super late or not at all?
You become liable for the super guarantee charge. Under Payday Super the ATO assesses it: the shortfall, notional earnings compounding daily at the general interest charge rate, an administrative uplift, a choice loading if applicable, and penalties of 25% or 50% for late or no disclosure. For quarters up to June 2026 the old charge applied: shortfall plus 10% nominal interest plus $20 per worker per quarter, not tax deductible, with penalties of up to 200%.
Can I ask a worker to get an ABN instead of putting them on the payroll?
Not if the work is employment. The Australian Business Register says people are not entitled to an ABN for work they do as an employee — apprentices, trade assistants and labourers are given as examples — and that an employer should not make an ABN a condition of a job. Representing an employee as a contractor can be sham contracting under the Fair Work Act, with penalties per contravention of up to $21,840 for an individual and $546,000 for a business with 15 or more employees.
Who can legitimately work on an ABN?
Someone genuinely carrying on their own business: they decide how the work is done, can accept or refuse jobs, can delegate or hire others, quote for results, supply their own significant tools or equipment, carry the commercial risk (including fixing defective work at their cost), advertise to the public and work for more than one client. The more of those that are true, the more likely the arrangement is a real contract — and even then super may still be due under the labour test.
Did the 2024 Fair Work changes alter who gets super?
No. From 26 August 2024 the Fair Work Act uses a 'whole of relationship' test (the real substance and practical reality of the arrangement) to decide employee status for workplace rights. Tax and super continue to use the superannuation guarantee tests and the ATO's ruling TR 2023/4, which focus on the contract's legal rights and obligations. A worker can be a contractor for one purpose and an employee for another.
Do I pay super for myself as a sole trader?
No, it isn't compulsory. You can make personal contributions to your own fund and claim a tax deduction for them within the concessional cap ($32,500 for 2026–27) by lodging a notice of intent with the fund before you lodge your return. If your business has staff or labour-only contractors, you must pay super for them.
What else do I need to do when I pay contractors?
Offer a choice of super fund and request a stapled fund from the ATO if none is chosen; withhold 47% from any supplier who doesn't quote an ABN; consider a PAYG voluntary withholding agreement; lodge a Taxable Payments Annual Report by 28 August if you are in building and construction, cleaning, courier or road freight, IT or security; and check state payroll tax 'relevant contract' rules and WorkCover, which can treat contractor payments as wages.