Superannuation changes for contractors in 2025

The Super Guarantee (SG) rate increase

The Super Guarantee is the percentage of an eligible worker’s earnings that employers must pay into their nominated super fund.

As of1 July 2025, the SG rate has increased from 11.5% to 12%, the final step in a phased increase that began in 2021. This is a legislated change under the Superannuation Guarantee (Administration) Act 1992.

What you need to know:

• The 12% rate applies to any pay periods starting on or after 1 July 2025 — even if the work was partly performed before that date.
• If a pay period spans June and July, you’ll need to apply the old and new rates proportionally.
• The SG rate applies equally to employees and eligible contractors.

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Superannuation obligations for contractors

A common mistake is assuming that contractors are responsible for their own super. In fact, the ATO’s rules mean you may still have to pay super for contractors in certain situations.

When a contractor is treated as an employee for SG purposes

If you engage someone primarily for their labour, you may be legally required to pay them super — even if they:

• Have an Australian Business Number (ABN)
• Invoice you for their services
• Consider themselves “self-employed”

The ATO applies a test under section 12(3) of the Superannuation Guarantee (Administration) Act 1992. You must pay super to a contractor if:

1. They are paid for their personal labour and skills (not for a fixed result)
2. They perform the work personally (cannot delegate to others)
3. They are paid by time worked (hourly, daily, weekly) rather than by result

Examples

You must pay super

• You hire a freelance designer at an hourly rate to work on marketing materials. They must complete the work themselves and use your equipment.
• You engage a labourer on a building site for a daily rate. They work under your direction and can’t subcontract the work.

You do not need to pay super

• You hire a contractor to deliver a fixed project (e.g., build a website) for a set fee. They can hire others to complete the work and provide their own tools.

Why this matters for small businesses

Not paying super when you should can trigger:

• The Super Guarantee Charge (SGC): unpaid super plus interest (currently 10%) and a $20 administration fee per employee, per quarter
• Penalties of up to 200% of the SGC amount
• Loss of tax deductions for late super payments
• A damaged reputation with contractors and clients

The ATO has made super compliance a top priority. Small businesses are under more scrutiny, especially those using large numbers of contractors.

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How to stay compliant

Step 1: Review all contractor arrangements

• Use the ATO’s Super Guarantee Eligibility Tool to check each contractor’s status.
• Review contracts — focus on payment structure, ability to delegate, and who provides tools.

Step 2: Update payroll and accounting systems

• From 1 July 2025, set your payroll system to apply the 12% SG rate.
• Add eligible contractors to your super payment runs.
• Confirm each contractor’s super fund name and Unique Superannuation Identifier (USI).

Step 3: Communicate the changes

Transparency avoids confusion and builds trust. In your communication:

• Explain the SG rate increase and how it affects payments.
• Clarify why the contractor is receiving super contributions (or why they’re not).
• Share the timeline for changes and when they will see them in their super statements.

Example message:

From 1 July 2025, the superannuation guarantee rate increases from 11.5% to 12%. Based on your engagement terms, you are entitled to super contributions, which will be paid to your nominated fund at the new rate.

Step 4: Keep detailed records

Maintain:

• Copies of all contractor agreements
• Evidence of super eligibility checks
• Payment and contribution records
• ATO correspondence or advice

This will protect your business if the ATO conducts an audit.

Step 5: Schedule regular compliance checks

• Review arrangements at least annually.
• Monitor ATO updates for legislative changes.
• Adjust payroll systems as needed.

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Implementation checklist

To ensure you are compliant with these changes:

1. Identify affected contractors – Run a full list of current contractors.
2. Check eligibility – Use the ATO tool to assess SG obligations.
3. Update payroll settings – Change SG rate to 12%.
4. Verify fund details – Contact contractors to confirm their super fund and USI.
5. Communicate changes – Email or meet with contractors to explain.
6. Test your payroll – Process a trial run to check calculations.
7. Document everything – Keep records for compliance and audit purposes.

The bigger picture: Getting Super right

Super is more than just a legal requirement — it’s a way to demonstrate that your business values the people it works with. Whether dealing with employees or contractors, staying compliant protects both your business and their financial future.

If managing payroll and super feels overwhelming, platforms like Thriday can help automate calculations, ensure timely payments, and keep records secure — so you can spend less time worrying about compliance and more time building your business.