Businesses have an obligation to pay superannuation for their employees. But did you know that you may also have an obligation to pay superannuation for contractors?

What's the Issue?

It's well known that many of the benefits businesses must provide to their employees, such as paid annual and personal leave, don't need to be provided to independent contractors. It's common to assume that superannuation works the same way, but that's not necessarily the case.

Do I have to pay superannuation for contractors?

Under the Superannuation Guarantee (Administration) Act 1992, where a business engages a person under a contract 'wholly or principally for the labour' they provide, the business must make compulsory superannuation contributions on their behalf. This is intended to encompass not only employees but some independent contractors as well.

To determine whether you have to pay superannuation for contractors, you need to ask what you hire the contractor for. Are they hired predominantly to provide labour, or are they hired to provide a particular service? If a contractor provides a specialised service, or brings their own capital equipment to carry out a task, it's more likely that the contract is a contract to provide a particular service, rather than a contract for labour.

If the contractor is hired predominantly to provide labour, you should consider whether the worker is actually an employee rather than a contractor. There are significant consequences for wrongly classifying workers as contractors when they are in fact employees. If you are in doubt about whether your workers are contractors or employees you should seek advice.

Where an independent contractor is contracted predominantly for the labour they provide, you will need to pay them superannuation under the compulsory superannuation guarantee scheme. Additional information is available on the ATO website.

But my contractors have their own business?

Whether or not an independent contractor has established their own business (with an ABN) is irrelevant to the question of whether a hirer has to pay superannuation for contractors.

It's different if you are contracting with a company rather than an individual. In that case it is the company rather than you that is obligated to pay superannuation. (However, the courts will make an exception to this rule if the company is being used as a sham to avoid providing workers with their entitlements).

Practical Tip

If you are in doubt about whether you need to make contributions for superannuation for contractors, you should seek advice. If you fail to pay superannuation when you should have, you will be liable to pay the superannuation guarantee charge (SGC) to the ATO to cover the superannuation you were required to pay. However, unlike superannuation payments the SGC is not tax deductible, so having to pay the SGC carries a tax penalty.

Being aware of when you have to pay superannuation to your contractors allows you to factor that cost into the contract at the start of the relationship, and avoid any nasty surprises down the track.

How can Sharrock Pitman Legal help me?

We have helped many businesses with ensuring they comply with their superannuation for contractors, and it would be our pleasure to assist you. We provide fixed prices and offer substantive free benefits to all customers who run a business. Call Sharrock Pitman Legal today on 1300 205 506.

The information contained in this article is intended to be of a general nature only and should not be relied upon as legal advice. Any legal matters should be discussed specifically with one of our lawyers.

Liability limited by a scheme approved under Professional Standards Legislation.

Written by a member of our Legal Team

For further information contact

Mitchell Zadow

Mitchell is the Managing Principal of our law practice.

He is an Accredited Specialist in Commercial Law (accredited by the Law Institute of Victoria). He also deals with areas of Employment Law, Wills & Estate Planning and Probate. For further information, contact Mitchell on his direct line (03) 8561 3318.

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Businesses have an obligation to pay superannuation for their employees. But did you know that you may also have an obligation to pay superannuation for contractors?

However, in this article we will set out the factors that influence how long it will take to obtain a Grant of Probate and to administer an estate in Victoria.

The basics

First things first: what is a Grant of Probate? A Grant of Probate is effectively a document issued by the Supreme Court of Victoria which formally authorises an executor to manage the estate of a deceased person in accordance with their Will. Without Probate, the asset holders (say a bank or share registry) cannot be satisfied as who has the correct authority to receive the deceased's assets and may refuse to pay out.

Sometimes, for smaller estates or if assets are mostly jointly owned with a surviving spouse, asset holders might agree to release payment without requiring a Grant of Probate. This is usually on the basis that the person who receives payment promises to repay (or Indemnify) the asset holder if it turns out they paid to the wrong person.

If there is no Will, then you cannot obtain a Grant of Probate. Instead you obtain Letters of Administration. This is effectively the same, in terms of authorising someone to administer the estate, and would usually be obtained by the person who is the closest next-of-kin to the deceased.

“A Grant of Probate is effectively a document issued by the Supreme Court of Victoria which formally authorises an executor to manage the estate of a deceased person in accordance with their Will.”

Timeframes for Probate in Victoria

In order to obtain a Grant of Probate, the Supreme Court needs to be given information about the assets and liabilities of the estate, the deceased person, the witnesses to the Will, the executors and the Will itself. An advertisement of your intention to apply for Probate must also be published on the Supreme Court website for at least 14 days prior to any application being lodged.

Often, making enquires to obtain all the necessary information can take a number of weeks. Also, you will need the Death Certificate for the application for Grant of Probate and possibly for making proper enquires regarding the assets and liabilities. Waiting for the Death Certificate to issue can therefore add a few more weeks to the process. Overall, if you have your application for Grant of Probate lodged within 1 to 2 months from the date of death, you are making timely progress.

The Court itself usually does not take long to process the application (maybe another 1 to 2 weeks) and this is completed using the electronic Supreme Court filing system. This means you do not have to go to a Court hearing. The timeframe for processing applications for Letters of Administration is even less, given that there is no Will document for the Court to consider. There is also a general discretion for the Court to raise a 'Requisition' asking for more information before they review the application - this can sometimes delay matters.

“Overall, if you have your application for Grant of Probate lodged within 1 to 2 months from the date of death, you are making timely progress.”

So, here we are a few months after death and you finally have a Grant of Probate or Letters of Administration. It is important to remember that this is the start of the estate administration and not the end. For a very simple estate, you might only need a further month or so to cash the assets and pay them to the correct beneficiaries. However, it can often be more complex than that. Factors that determine the timeframe to administer the estate include:-

Some assets will take time to cash or transfer. For example, if selling a property, final settlement might be 60/90/120 days from the day of sale.
There is a 6 month period for challenges to be brought against the estate and executors must wait until this period expires before distributing the estate, if there is any risk that a disgruntled family member might come forward.
There might need to be final tax returns for the deceased or for the estate. Failing to wait for the ATO to process these could leave the executor personally liable for a tax bill.

You might need to advertise for creditors to come forward and wait for a period of months while this advertising timeframe expires. This protects the executor if they are unsure of all of the deceased's financial dealings and creditors.
It might not always be a good time to immediately cash estate assets. For example, the shares just took a nose-dive, do you still sell regardless of available price?

There is a general rule that executors have an 'executor's year' to complete the estate administration. This means that you should be aiming to have the estate finalised and distributed within 12 months from the date of death.

Liability limited by a scheme approved under Professional Standards Legislation.

Need help with Probate?

Our expert legal team is ready to take your call!

Mitchell is the Managing Principal of Sharrock Pitman Legal. He is an Accredited Specialist in Commercial Law (accredited by the Law Institute of Victoria). He also deals with areas of Employment Law, Wills & Estate Planning and Probate and can answer all your questions related to probate.

For further information, contact Mitchell on his direct line:

DIRECT LINE:

(03) 8561 3318

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Superannuation for Contractors: What you need to know

Businesses have an obligation to pay superannuation for their employees. But did you know that you may also have an obligation to pay superannuation for contractors?

What's the Issue?

Do I have to pay superannuation for contractors?

But my contractors have their own business?

Practical Tip