Contractors and Super. Do I have to pay superannuation to contractors?
Companies and gernally not considered a person, therefore if your contractor is a company then no super is required. However if they are a sole trader or partnership then you may need to pay superannuation even if they are contractor. For the ATo interpretation on contractors and superannuation refer to the Super Guarantee Ruling.
Reportable employer super contributions to go on payment summary
Reportable employer super contributions are those contributions your employer makes for you where all of the following apply:
you influenced the amount or rate of super your employer contributes
the contributions are additional to the compulsory contributions your employer must make under any of the following:
super guarantee law
an industrial agreement
the trust deed or governing rules of a super fund
a federal, state or territory law.
For Example - Jane is paid a salary $100,000 gross plus the super guarantee of 9% ($9,000). Jane requests to salary sacrifice $10,000 off her gross wage to her nominated super fund. The Employer now pays Jane $90,000 gross and $19,000 is sent to her super fund.
Jane's reportable super amount on her payment summary at year end is $10,000.
You have to pay super for eligible employees from the first day you employ them. These super guarantee contributions have to be paid for each eligible employee to the correct super fund at least four times a year, by the quarterly cut-off dates shown in the following table.
Quarter
Period
Payment cut-off date
1
1 July – 30 September
28 October
2
1 October – 31 December
28 January
3
1 January – 31 March
28 April
4
1 April – 30 June
28 July
When a cut-off date for payment falls on a Saturday, Sunday or public holiday, you can make the payment on the next working day after the cut-off date.
You can pay contributions more regularly than quarterly if you want to. For example, you can pay fortnightly or monthly, as long as the total super guarantee obligation for the quarter is paid by the quarterly cut-off date.
As award or other contractual super obligations may also apply, you must check that you meet the requirements set out in any relevant award or contract. Compliance with one arrangement may not always ensure compliance with the other.
Although generally all super contributions are tax deductible from a business point of view, there is an age based limit on how much an employee should be salary sacrificing into their superannation. Note these figures you need to inlclude their 9% compulsory super.
Concessional contributions include employer contributions (including contributions made under a salary sacrifice arrangement) and personal contributions claimed as a tax deduction by a self-employed person.
Income Year
Amount of cap
2011-12
$25,000
2010-11
$25,000
2008-09
$50,000
Transitional arrangement for the concessional contributions cap
Between 1 July 2007 and 30 June 2012, a transitional concessional contributions cap will apply for people aged 50 or over. During this time, if you are aged 50 or over the annual cap will be:
Did you know SGR94/4 has now been replaced by SGR 2009/2. One item to look out for is the change in the way bonuses are treated for super purposes. Generally with bonuses you now have to pay super on them! Refer to item 28 below.
These recent addendums clarify the ATO's view on items such as paid parental leave which are excluded from ordinary time earnings. See 7. Paragraph 67 2009/2A1
Meaning of ‘ordinary hours of work’ 13. An employee’s ‘ordinary hours of work’ are the hours specified as his or her ordinary hours of work under the relevant award or agreement, or under the combination of such documents, that governs the employee’s conditions of employment. 14. The document need not use the exact expression ‘ordinary hours of work’, but it needs to draw a genuine distinction, for the purposes of the award or agreement, between ordinary hours and other hours. In particular, it would be expected that the other hours are remunerated at a higher rate (typically described as overtime) than the ordinary hours, or otherwise identifiable as a separate component of the total pay in respect of non-ordinary hours 15. Any hours worked in excess of, or outside the span (if any) of, those specified ordinary hours of work are not part of the employee’s ‘ordinary hours of work’ 16. If the ordinary hours of work are not specified in a relevant award or agreement, the ‘ordinary hours of work’ are the normal, regular, usual or customary hours worked by the employee, as determined in all the circumstances of the case. This is not necessarily the minimum or maximum number of hours worked or required to be worked. 17. In such cases, it may often not be possible or practicable to determine the normal, regular, usual or customary hours of an employee’s work. If so, the actual hours worked should be taken to be the ordinary hours of work. 18. ‘Ordinary hours of work’ are not necessarily limited to hours to be worked between 9am and 5pm, Monday to Friday. They may (depending on the provision in the relevant award or agreement, if any) include hours to be worked at other times, including at night, on weekends or on public holidays. Maximum contribution base 19. The total of OTE in respect of an employee for a quarter cannot exceed the maximum contribution base for the quarter: see paragraph (b) of the definition of ‘ordinary time earnings’ in subsection 6(1). For any quarter in the 2008-09 year, the maximum contribution base is $38,180. The amount is subject to yearly indexation, which takes into account movements in full-time adult average weekly ordinary time earnings (AWOTE). Payments specifically included in the definition of ‘ordinary time earnings’ in subsection 6(1) 20. Earnings consisting of over-award payments, shift-loading or commission are specifically included in the definition of OTE by subparagraph (a)(ii) of that definition in subsection 6(1). Over-award payments 21. An over-award payment is the component of a payment in excess of an award entitlement. The Commissioner’s view is that the specific inclusion of these payments does not apply to over-award payments that are specifically referable to hours worked that are not ordinary time hours. For example, an employer’s policy may be to offer a higher rate of overtime pay for some overtime hours worked than the penalty rate required by an award. Even though technically over-award payments, such additional payments would not be OTE under subparagraph (a)(ii) of the definition of OTE in subsection 6(1).
Shift-loading 22. A shift-loading is an amount paid to a worker in addition to his or her basic hourly rate for having to work outside the usual span of time for day workers. Shift-loadings payable on ordinary hours of work must be distinguished from overtime payments under awards and agreements. Often these are mutually exclusive under awards and agreements, but if an employee is entitled to a shift-loading in respect of hours other than ordinary hours of work, the Commissioner’s view is that the specific inclusion of shift-loadings does not apply in that circumstance. Commission 23. A commission is a payment made to an employee such as a salesperson on the basis of the volume of sales he or she achieves or other similar criteria. These are always OTE except in the unusual case where they can be shown to be wholly referable to overtime hours worked. Payments specifically excluded from the definition of ‘ordinary time earnings’ in subsection 6(1) 24. Specifically excluded from the definition of OTE in subsection 6(1) is a lump sum paid to the employee on the termination of his or her employment, being: • a payment in lieu of unused sick leave; or • an unused annual leave payment or unused long service leave payment within the meaning of the Income Tax Assessment Act 1997. Earnings ‘in respect of ordinary hours of work’ means all earnings other than overtime 25. All amounts of earnings in respect of employment are in respect of the employee’s ordinary hours of work unless they are remuneration for working overtime hours, or are otherwise referable only to overtime or to other hours that are not ordinary hours of work. There is no such thing as earnings that are merely in respect of employment generally and are not OTE because they are not in respect of any particular hours of work. 26. An award or agreement may itself have a definition of ‘ordinary time earnings’ that purports to apply for superannuation purposes. However, the central question posed by the definition of OTE in the SGAA is what amounts are ‘earnings in respect of ordinary hours of work’. This could in some cases be a different amount from any purported amount of ‘OTE’ in the award or agreement. As mentioned in paragraph 13 of this Ruling, the Commissioner accepts that ‘ordinary hours of work’ are as determined by the relevant award or agreement, but that does not imply that OTE itself is necessarily as determined by the award or agreement. Certain specific kinds of payments that are ‘ordinary time earnings’ Allowances and loadings 27. Many employees receive various additional payments that are described as allowances or loadings and that are paid to employees to recognise or compensate for certain conditions relating to their employment. Examples: • a ‘site allowance’ paid fortnightly at a flat rate in acknowledgement of the displacement an employee undergoes when a job requires him or her to work in a remote location; • a ‘casual loading’ of 20% of the basic ordinary time rate of pay paid to a casual worker in lieu of any fixed, regular minimum hours of work and of paid leave entitlements; • a ‘dirt allowance’ paid as a flat rate in acknowledgement of the conditions in which the work is undertaken; and • a ‘freezer allowance’ paid at the rate of an extra $2.50 per hour to employees, such as some supermarket employees, who perform most of their duties in cold storage facilities. These kinds of payment are OTE except to the extent that they: • are not ‘salary or wages’, for example if they are payments of a predetermined amount to offset or reimburse particular expenses (see paragraph 72 of this Ruling); or • relate solely to hours of work other than ordinary hours of work (see paragraphs 41 to 43 of this Ruling). Bonuses 28. Additional earnings received as a reward for good performance, and other like ‘bonus’ payments, are OTE in most cases. Exceptionally, a discrete and clearly identifiable bonus payment may relate solely to work performed entirely outside ordinary hours. For example, an employer may pay a bonus specifically to recognise a special project that an employee contributed to entirely in non-ordinary hours. 29. There would need to be clear evidence that this was the sole basis for the payment. The more common case of a lump sum performance bonus that is at least partly referable to results achieved in ordinary hours of work is wholly OTE. Piece-rates 30. Unless an employee is subject to an award or agreement that specifies the employee’s ordinary hours of work, all wage payments made on a piece-rate basis are included in an employee’s OTE. As the number of units or items completed is the basis for calculating the payment, the hours actually worked that resulted in the completion of the units or items are the employee’s ‘ordinary hours of work’. 31. If the employee is subject to an award or agreement that specifies their ordinary hours, then the employee’s earnings in respect of those hours must be determined having regard to the relevant provisions of the award or agreement. Paid leave and holiday pay 32. Subject to the exclusion from the scope of this Ruling mentioned at paragraph 4, salary or wages that an employee receives, at or below his or her normal rate of pay for ordinary hours of work, in respect of periods of paid leave is simply a continuation of their ordinary time pay. It is OTE. It does not matter whether the entitlement to take the paid leave accrued gradually over time, arose in a specified circumstance or following a specified event, or was simply granted to the employee in the exercise of the employer’s discretion. 33. Similarly, salary or wages received at the ordinary time rate in respect of public holidays, rostered days off and the like is OTE. 34. However, as noted in paragraph 4, this Ruling does not deal with payments made while a worker is on paid parental leave or other kinds of ancillary leave. 35. The principle in paragraph 32 of this Ruling does not extend to extra payments by way of ‘leave loadings’, and like payments, that are demonstrably referable to a notional loss of opportunity to work overtime, or similar. 36. Lump sum arrears payments of unused leave or salary or wages otherwise than on termination of employment are also OTE. Top-up payments 37. An employee may receive ‘top-up payments’, such as those made while serving on jury duty or with defence reserve forces, that make up some or all of the difference between any amount the employee is receiving for performing such service and the ordinary time rate of pay he or she would earn if not performing such service. As noted in paragraph 4, this Ruling does not deal with top-up payments of this kind. Payments in lieu of notice 38. An employee may be entitled to a period of notice before the employer’s termination of his or her employment takes effect. Awards and agreements often provide that, instead of giving this notice, the employer may simply pay an amount equivalent to the ordinary time rate of salary or wages that the employee would have earned during the notice period. Such payments are OTE. Workers’ compensation payments – employee required to work 39. Workers’ compensation payments made by an employer or on behalf of an employer (for example, by an insurance company) are part of an employee’s OTE only if they are ‘salary or wages’ paid in respect of ordinary hours of work. Any such payments are part of ‘salary or wages’ only if the employee actually performs work or is required to attend work: see paragraphs 68 and 76 of this Ruling. Directors’ fees 40. All fees paid to a company director are earnings in respect of the director’s ordinary hours of work. Certain specific kinds of payments that are not ‘ordinary time earnings’ Overtime payments 41. Payments for work performed during hours outside an employee’s ordinary hours of work are not OTE. 42. This is so whether the payments are calculated at an hourly rate or the employee gets a specific loading, or an annualised or lump sum component of a total salary package, that is expressly referable to overtime hours as remuneration for overtime hours worked. 43. However, some employees, particularly some managers and professionals, receive a single undissected annual salary within a remuneration package that recognises in a non-specific way that the employee may often be expected to work more than the ordinary hours of work prescribed. The whole amount of salary payable under such a package is OTE, unless overtime amounts are distinctly identifiable as mentioned in paragraph 42 of this Ruling. On-call allowances 44. An on-call or availability allowance is a payment to an employee for making himself or herself available at certain times to be called in to work if needed. This entitlement is separate from the salary or wages he or she will receive if actually called in. If paid in respect of hours that the employee is not otherwise working, these payments are not OTE. 45. In some cases on-call allowances are paid as a loading on the salary of an employee received for ordinary hours of work. For example, some doctors employed by hospitals are paid an extra hourly allowance, while carrying out routine duties in ordinary hours of work, to make themselves available to perform urgent surgery if required. Payments of that kind are OTE (except of course to the extent that they are paid in respect of overtime hours).
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