In Australia, employers must pay superannuation (super) to their workers. This is called the Superannuation Guarantee (SG). It helps workers save for retirement. While most people know that super is paid to regular employees, the rules are actually much broader. In fact, even some people who don’t seem like employees—such as contractors, gym instructors, or performers—might still be owed super by the people who hire them.

This article will break down the SG rules in simple terms, so you can understand who needs to be paid super, when you need to pay it, and what happens if you don’t.

What Is Superannuation Guarantee (SG)?

Superannuation Guarantee is a legal requirement in Australia. Employers must pay a percentage of an eligible worker’s ordinary time earnings into a super fund. This helps that worker build a retirement savings balance over time.

As of 01 July 2024, the SG rate is 11.5%, and it is set to increase to 12% by 01 July 2025.

Who Is Exempt From SG?

Before diving into who is captured by SG obligations, it’s useful to clarify who is not. Employers are not required to pay SG contributions in the following scenarios:

• Workers under 18 who work fewer than 30 hours per week.
• Private and domestic workers (e.g., nannies, gardeners) who work less than 30 hours per week.
• Non-resident employees working outside Australia.
• Employees temporarily working in Australia under a bilateral agreement.
• Certain foreign executives with specific visa types or entry permits.
• Contractors hired via a company, trust, or partnership.

Even in these cases, caution is advised. For example, Australian employees temporarily working overseas may still be eligible for SG, especially if their host country, such as United States, has a bilateral social security agreement with Australia. In such cases, a certificate of coverage from the ATO can exempt the employer from having to pay super in the foreign jurisdiction.

The Broader Definition of “Employee” Under SG Laws

Section 12 of the Superannuation Guarantee (Administration) Act 1992 outlines an expanded definition of “employee” for SG purposes. This section brings into the fold several categories of workers who may not traditionally be seen as employees:

• Company directors who are paid for their work.
• Contractors whose contract is mainly for their labour (time and skills).
• Certain workers hired by the government.
• People paid to perform or present music, plays, dances, entertainment, sport, or promotional activities. It also includes people who help with these activities or are involved in recordings or broadcasts (like film or TV).

Are Contractors Entitled to SG?

One of the biggest mistake among business owners is that hiring someone with an ABN automatically exempts them from SG contributions. Unfortunately, that’s not the case.

If the contract with the individual is “wholly or principally for their labour and is an employee of the other party to the contract” then that individual is likely to be deemed an employee for SG purposes. The ATO provides clear criteria to help determine this:

• The contractor is paid under a contract primarily for their labour (i.e., more than half the value of the contract is for their time and effort).
• The individual is paid for their personal labour and skills, not for delivering a specific result.
• The work cannot be delegated to another person.

Even more frustrating for business owners is the fact that the language of the contract is not enough to protect you. It doesn’t matter if the agreement explicitly says the contractor is responsible for their own super. If they meet the ATO’s criteria for a deemed employee, you’re legally required to pay SG.

In a recent clarification, the ATO noted that where a contractor uses significant capital assets (like a truck), this may indicate that the contract is not primarily for their labour. However, every case depends on the specific facts.

Do Company Directors Receive Super?

Under SG legislation, company directors who are remunerated for performing duties for the business must also be paid SG contributions. This applies regardless of whether they are employees in the conventional sense. Director remuneration—if paid in return for services—is sufficient to trigger the obligation.

What About Performers, Entertainers, and Sportspeople?

If a performer works through a company, trust or partnership, you normally don’t have to pay super for them. But if they are working as individuals (like a sole trader), then SG usually applies.

Under the SG rules (section 12(8)), you must pay super for someone who is paid to:

• Perform in music, theatre, dance, sports, or similar events.
• Provide services in connection with the activities above (e.g., production staff, technical crew).
• Help with the creation of films, recordings, or broadcasts (TV, radio, etc.).

Here’s how it works in real life:

If a music festival hires a solo performer who operates as a sole trader, the festival may need to pay super for that performer. If that performer hires backup singers or band members, and pays them, then they also need to pay SG for those workers.

If an agency is involved—meaning the agency gets paid and then pays the performers—then the agency is likely responsible for paying the super. But if the festival pays the performers directly, then the festival takes on the responsibility.

This is why it’s so important to be clear on who is legally responsible for super payments.

Fitness Industry: Are Gym Instructors Employees?

Let’s take a common example from the fitness world—a gym instructor who operates as a sole trader. The instructor has an ABN and a contract with the gym stating they are an independent contractor responsible for their own taxes and super. They are paid per class or session and use the gym’s facilities, scheduling system, and branding.

In this scenario, several red flags are raised:

• The instructor is paid for their time and skills (labour-based payment).
• They cannot delegate the task to another instructor.
• They wear the gym’s uniform and follow the gym’s methods of training.

Despite the contractual wording, the instructor likely meets the definition of an employee under the SG Act. If the gym has not been making SG contributions, they could be liable for payments backdated to the beginning of the instructor’s engagement.

Why This Matters: ATO Enforcement and No Time Limits

One of the most critical aspects of SG compliance is that there is no statutory time limit for the ATO to enforce unpaid super. In theory, the ATO can pursue unpaid SG obligations from the inception of the employment relationship—whether that was last year or a decade ago.

Moreover, company directors can be held personally liable under the Director Penalty Notice (DPN) regime for unpaid SG obligations. This creates a significant risk for businesses, particularly in industries where non-traditional work arrangements are common.

What Should Employers Do?

If you’re uncertain about whether SG applies in a particular work arrangement, here are some proactive steps to take:

1. Seek professional advice – An accountant or employment lawyer can help you assess worker classifications.
2. Request a private ruling from the ATO – This provides legal clarity for your unique arrangement.
3. Review contracts – Ensure your agreements reflect the actual working relationship, not just the desired label.
4. Keep detailed records – Documentation can support your position in the event of an audit.
5. Audit historical arrangements – Identify any existing risks related to past or present engagements.

Final Thoughts

The Superannuation Guarantee rules have never been more important for business owners to understand—especially those in industries like entertainment, fitness, and contract-based services. With the ATO sharpening its focus on compliance, failing to understand and correctly apply SG obligations can have serious financial and legal consequences.

Pitt Martin Group is a CPA accounting firm, providing services including taxation, accounting, business consulting, self-managed superannuation funds, auditing and mortgage & finance. We spend hundreds of hours each year on training and researching new tax laws to ensure our clients can maximize legitimate tax benefit. Our contact information are phone +61292213345 or email info@pittmartingroup.com.au. Pitt Martin Group is located in the convenient transportation hub of Sydney’s central business district. Our honours include the 2018 CPA NSW President’s Award for Excellence, the 2020 Australian Small Business Champion Award Finalist, the 2021 Australia’s well-known media ‘Accountants Daily’ the Accounting Firm of the Year Award Finalist and the 2022 Start-up Firm of the Year Award Finalist, and the 2023 Hong Kong-Australia Business Association Business Award Finalist.

Pitt Martin Group qualifications include over fifteen years of professional experience in accounting industry, membership certification of the Australian Society of Certified Practising Accountants (CPA), Australian Taxation Registered Agents, certified External Examiner of the Law Societies of New South Wales, Victoria, and Western Australia Law Trust Accounts, membership certification of the Finance Brokers Association of Australia Limited (FBAA), Registered Agents of the Australian Securities and Investments Commission (ASIC), certified Advisor of accounting software such as XERO, QUICKBOOKS, MYOB, etc.

This content is for reference only and does not constitute advice on any individual or group’s specific situation. Any individual or group should take action only after consulting with professionals. Due to the timeliness of tax laws, we have endeavoured to provide timely and accurate information at the time of publication, but cannot guarantee that the content stated will remain applicable in the future. Please indicate the source when forwarding this content.

By Angela Abejo @ Pitt Martin Tax