They have an ABN and send you an invoice. You might still have to pay their super.

Superannuation law has a broader definition of employee than many business owners realise.

Under section 12(3) of the Superannuation Guarantee (Administration) Act 1992, someone can be treated as an employee for super purposes if they are working under a contract that is wholly or principally for their labour.

So the fact that someone:

• has an ABN
• sends invoices
• is called a subcontractor
• isn't set up in your normal payroll

doesn't settle it.

You still need to look at what the arrangement actually is.

The ATO says the same thing. If an independent contractor is paid mainly for their labour, super may still be payable, and having an ABN does not change that by itself.

The worker was paid by the hour to personally drive and operate a water truck.

The truck was owned and maintained within the business.

The worker invoiced for his time.

The Tribunal found that the arrangement was essentially for his labour.

That was enough for him to fall within the superannuation definition of employee.

The fact that he had been treated as a contractor did not change the super obligation.

Take a pretty common construction example.

You have an electrician who:

• works with your team most weeks
• charges you $55 an hour
• personally does the work
• can't just send somebody else in their place
• sends you an invoice each week

You should be checking that arrangement properly.

Do not stop at:

“He has an ABN, so we're fine.”

Compare that with engaging an electrical company to complete an agreed package of work, where that company decides who does the work, uses its own people and is responsible for delivering the result.

Those are very different arrangements.

Neither example by itself gives you the legal answer, but it shows why looking at the invoice alone isn't enough.

This comes up all the time in construction because there can be a real mix of people working in and around the business.

You might have:

• genuine subcontracting companies
• sole traders completing defined jobs
• labour-only contractors
• people working alongside your employees
• companies supplying their own staff

They can all get called “subbies”.

That doesn't mean they all get treated the same way.

Some will clearly be genuine contractors.

Others may still fall within the superannuation rules even though everyone involved has been referring to them as contractors.

This is another thing I would check.

There is a difference between contracting directly with an individual and engaging a separate company, trust or partnership.

The ATO's current guidance says the extended labour test generally does not apply in the same way where the contract is with a company, trust or partnership rather than directly with the individual doing the work.

That doesn't mean the answer is to put everyone through a company.

It means you need to know who the actual parties to the agreement are.

If John Smith is invoicing you through John Smith's individual ABN, that is different from engaging Smith Electrical Pty Ltd to complete a package of electrical work using its own people.

Again, look at the actual arrangement.

This is where the terminology can get confusing.

Whether someone is an employee or contractor can matter for:

• super
• PAYG withholding
• Fair Work
• workers compensation
• payroll tax

The answer for one purpose does not necessarily give you the answer for every other one.

Fair Work has its own rules.

Super has its own definition.

Fair Work itself says its employee/contractor definition does not change the meaning of employee under tax, superannuation or workers compensation laws.

So asking:

“Are they a contractor?”

is sometimes too broad a question.

For us, the better question is:

“How does this arrangement work, and what obligations come with it?”

The case involved work going back several years.

That is what makes these mistakes expensive.

If you have one person who should have been receiving super and the arrangement has been running for three or four years, you are not talking about fixing one payroll.

You may be dealing with historical super shortfalls, superannuation guarantee charge and interest.

The ATO and Fair Work have both pointed out that getting contractor classification wrong can result in SGC and other consequences.

In the Kay case, the amount referred to was $16,543.51 including general interest charge.

That was one worker.

If you have three, four or five people engaged on similar terms, the number can get big pretty quickly.

This is also more relevant since Payday Super commenced from 1 July 2026.

The SG rate remains 12%, but the timing of super payments has changed.

Super is now generally paid in connection with each payday, with contributions ordinarily required to reach the employee's fund within seven business days, subject to applicable exceptions. The current rules also include payments to workers caught by the extended employee definition, including independent contractors paid for their labour.

So this is not just an issue that comes up if the ATO looks back at old contractor arrangements.

Businesses need to get the treatment right now.

Pull up your contractor expense accounts and your list of regular subcontractors.

For each person, work out:

• who the agreement is actually with
• what they are being paid for
• whether they are paid by the hour, day or for a result
• whether they personally have to do the work
• whether they can genuinely delegate the work
• who provides the major equipment
• whether they are actually running their own business
• how regularly they work for you

You do not need to assume there is a problem just because someone is called a contractor.

But you should know why you have treated them that way.

What I would not want to see is a contractor account with the same five individuals sitting in it for four years and nobody has ever actually checked whether super should have been paid.

If you regularly engage contractors, I would also want proper written agreements in place.

The arrangement in the Kay case was oral.

Having a written contract would not automatically have changed the outcome.

You cannot simply write:

“This person is an independent contractor”

and assume that is the end of it.

But a proper agreement should make clear:

• what work is being done
• how payment works
• whether the person can delegate
• who provides equipment
• who is responsible for completing the work
• what each party is actually agreeing to

That is much better than trying to work it out three years later when the ATO is asking questions.

That isn't the point.

There are plenty of genuine contractor arrangements where no SG obligation arises.

Contractors are a normal part of construction, trades and plenty of other industries.

The mistake is assuming the word “contractor” gives you the answer.

It doesn't.

If you regularly pay individuals for their own labour, particularly where they are paid by the hour or day and personally perform the work, check it.

It is a lot easier to sort this out now than after several years of payments have built up.