It’s late. The invoices are still open on your laptop, tomorrow’s payments need approval, and one question keeps circling your brain:
“Do I actually have to pay super for my contractors?”
If your answer is, “They have an ABN, so I thought they handled that themselves,” you are not alone. Plenty of Australian business owners have made the same assumption.
But an ABN is not the end of the conversation.
On 10 September 2026, the ATO released draft guidance on when contractor payments may attract superannuation obligations. The guidance puts the spotlight back on something many businesses have treated as a paperwork issue: how people work in practice, not just what their invoice says.
The draft guidance is not a reason to panic. It is a reason to stop flying blind.
Why does the contractor-versus-employee line matter?
The distinction matters because someone can be a contractor for some purposes but still be treated as an employee for Superannuation Guarantee (SG) purposes.
Under the extended employee rules, a contractor may be entitled to super if the arrangement is mainly for that person’s labour and skills. In plain English, the ATO looks at whether you are paying for:
- The individual’s personal work
- Their time, skills or expertise
- Work they are expected to perform themselves
- An ongoing service rather than a specific finished result
That means the label “contractor” does not automatically settle the matter. Nor does the fact that they send an invoice, quote an ABN or manage their own tax instalments.
The ATO’s guidance on super for independent contractors makes the basic position clear: independent contractors who are paid mainly for their labour may be entitled to super.
Think of it like a cake recipe. The contract label is only one ingredient. The ATO is looking at the whole mixture: control, delegation, equipment, risk, result and, most importantly, what you are really paying for.
“But they have an ABN…” : is that enough?
No. An ABN proves that a business or individual is registered for tax purposes. It does not decide whether super is payable.
A contractor with an ABN may still be treated as an employee for SG purposes where:
- They must personally perform the work.
- They cannot freely subcontract or delegate the work.
- You pay mainly for their labour and skills.
- They are paid for their time or services rather than a clearly defined result.
- The arrangement looks like an employment relationship in day-to-day practice.
For example, imagine a café owner engages Sam, a sole-trader barista, for four regular shifts every week. Sam uses the café’s equipment, works to the café’s roster, follows the café’s procedures and must personally attend each shift.
Sam may issue invoices and have an ABN. But the practical arrangement may still point towards payment for personal labour.
That is very different from hiring a cleaning company to deliver a defined end-of-lease clean for a fixed price, using its own staff, equipment and methods. In that situation, the contract may be more clearly for a result.
The details matter. So does the reality behind the paperwork.
What is the new ATO draft guidance actually saying?
The new draft guidance focuses on how businesses should identify the part of a contractor payment that relates to the person’s labour.
Where a contractor is caught by the extended SG rules, genuine non-labour components may sit outside the super calculation. These could include:
- Materials supplied for a project
- Equipment hire
- Parts or stock
- Certain genuine business expenses
- Other clearly identified non-labour components
The tricky bit comes when everything is bundled into one amount.
Suppose a contractor invoices $4,000 for labour, materials and equipment, but the invoice simply says “consulting services : $4,000”. You may need to determine a reasonable value for the labour component.
The draft guidance signals that businesses should use objective information such as:
- Market rates for comparable work
- Relevant industry or award rates
- The reasonable value of equipment or materials
- The contractor’s usual pricing structure
- The wording of the agreement and invoices
- What actually happened during the engagement
In other words, “we’ve always paid the invoice as-is” may not be enough evidence if the ATO asks how you reached your calculation.
Does ordinary time earnings still matter?
It is worth understanding the terminology without getting buried in the weeds.
Historically, businesses often looked at ordinary time earnings (OTE) when calculating super. OTE generally refers to payments for ordinary hours of work, rather than every payment made to a worker.
The new guidance signals a closer look at payments that are in respect of a person’s labour. For contractors who are treated as employees for SG purposes, the business needs to identify the labour-related portion of the payment.
That means you should not only ask:
“Was this payment for ordinary hours?”
You should also ask:
“What part of this payment was for this person’s labour, skills and personal services?”
Overtime, additional services, project-related labour and other labour payments may need careful review. The calculation should be based on the relevant rules in force and the facts of the arrangement, not a guess made at the end of the financial year.
The draft guidance is still subject to change. However, the underlying principle is not new: if you are paying mainly for a person’s labour, super may be payable even when they are called a contractor.
What could happen if you get it wrong?
A super shortfall can become much more expensive than the original contribution.
If the ATO determines that super should have been paid, your business may face:
- Unpaid super contributions
- Superannuation Guarantee Charge (SGC)
- Interest
- Administrative penalties
- Additional penalties for failing to keep proper records or lodge correctly
- Time-consuming reviews of historical contractor payments
An ATO review may also require you to explain how you classified each contractor, how you calculated the labour component and how you confirmed payments were made correctly.
That is why contractor compliance is not just a payroll task. It is a documentation task, a systems task and a business-risk task.
What should you review now?
You do not need to wait for an ATO letter. A practical internal review can give you a much clearer picture.
Start with these five areas.
1. Review your contractor agreements
For every contractor, check:
- Is the agreement with an individual, company, trust or partnership?
- Is the contractor engaged to achieve a specific result?
- Is there a genuine right to delegate or subcontract?
- Does the agreement separate labour from materials and equipment?
- Does the written agreement match the way the work actually happens?
Do not rely on a generic template that has not been reviewed since the business started. A contract can say one thing while the daily working arrangement says another.
2. Review how the work is performed
Ask what happens on an ordinary Tuesday, not just what the agreement says.
- Who sets the hours or schedule?
- Who supplies the tools, software or equipment?
- Can the contractor send someone else?
- Who carries commercial risk?
- Is the contractor paid by the hour, by the task or for a defined result?
- Does the contractor work mainly for your business?
- Are they integrated into your team and systems?
This is where the “in practice” test becomes important.
3. Review payment records and invoices
Look for:
- Repeated hourly or daily charges
- Payments that closely resemble wages
- Labour and materials bundled together
- Vague invoice descriptions
- Regular payments with no clear project outcome
- Contractor payments processed through payroll or coded inconsistently
- Missing evidence for reimbursements or equipment costs
Your accounting file should tell a clear story. If someone unfamiliar with the business opened the file, would they understand what each payment was for?
4. Check ABN and invoicing details
Confirm that:
- The ABN belongs to the entity you engaged.
- The legal name on the invoice matches the agreement.
- GST treatment is applied correctly.
- Labour and non-labour components are separated where possible.
- Payment descriptions are specific enough to support later review.
An ABN check is useful. It is simply not a substitute for assessing the relationship.
5. Check your payroll and super processes
Review whether your systems can:
- Identify contractors who may be employees for SG purposes
- Calculate super on the appropriate labour-related amount
- Track contractor payments separately from ordinary supplier expenses
- Reconcile payments to invoices and agreements
- Retain evidence of calculations and approvals
- Produce records quickly if an ATO review occurs
Your contractor super pre-review checklist
Before you put the kettle on and call the arrangement “sorted”, ask:
- Have we listed every contractor paid during the year?
- Have we reviewed the actual working arrangement, not just the label?
- Does each agreement explain whether the work is for labour or a result?
- Is there a genuine right to delegate or subcontract?
- Are labour, materials and equipment shown separately?
- Have we checked whether payments resemble ordinary wage or labour payments?
- Do our payroll and accounting systems treat relevant contractors consistently?
- Can we produce agreements, invoices, payment records and calculations?
- Have we identified any historic period that needs further review?
- Do we know who will help if the ATO asks questions?
If several boxes are still blank, that is useful information. It tells you where to start.
How can KB Accounts help?
At KB Accounts, we work as strategic partners, not just people who process transactions after the fact.
Our team can help you review contractor payments, assess payroll setup, reconcile records and prepare the supporting information needed for an ATO Superannuation Audit. We can also help identify where your file needs a deeper Health Check or fast Project Rescue.
Our support may include:
- Contractor payment reviews
- Payroll setup and process reviews
- Superannuation calculation checks
- Labour and non-labour payment analysis
- Contractor and payroll reconciliations
- ATO Super Audits preparation
- Financial reporting for small business
- BAS agent services Australia-wide
- Ongoing payroll services for small business
If you are comparing outsourced bookkeeping services or professional bookkeeping services, look beyond data entry. You need a team that can troubleshoot systems, spot unusual payment patterns, explain what the numbers mean and help you find the right specialist when an issue sits outside day-to-day financial management.
Ready to review your contractor arrangements?
The ATO’s draft guidance is a timely reminder that compliance lives in the details.
A contractor’s ABN, invoice and job title are starting points. They are not the full answer.
If your business pays contractors for personal labour, now is the right time to review the agreements, payment records, payroll settings and supporting evidence. A little attention today could save a very expensive headache later.
Contact KB Accounts to discuss a contractor payment review, payroll setup check or ATO Superannuation Audit preparation. We will help you understand where you stand, what needs fixing and how to keep your business moving without the late-night worry.
This article provides general information only. The ATO guidance discussed is draft guidance and may change. Obtain professional advice about your specific circumstances.