Superannuation and AP

Superannuation in the accounts payable context arises when a business makes payments to workers -- particularly contractors -- who are entitled to superannuation guarantee contributions from the business. The standard rule is that employees receive super from their employer through payroll. But the Superannuation Guarantee (Administration) Act 1992 extends this obligation to some contractor arrangements, making super relevant to AP processing for businesses with significant contractor spend.

The contractor super obligation applies when a contract is wholly or principally for the labour of the individual. A sole trader electrician invoicing for labour at an hourly rate, where the business supplies materials and direction, is likely captured by this provision. A building company invoicing for a completed installation -- where the company supplies its own workforce, materials, and methods -- is not, because the contract is for an outcome rather than labour.

How super obligations flow through AP

When a business determines that a contractor is entitled to super, the process is similar to employee super: the business must contribute 11.5 percent of the contractor's ordinary time earnings (the rate for the 2024/25 year, rising to 12 percent from 2025/26) to a complying superannuation fund by the quarterly due dates. The contribution is a cost to the business, not deducted from the contractor's invoice -- it is in addition to the invoice payment.

From an AP coding perspective, super contributions for contractors should be coded as an employment-related cost, not as part of the contractor's service fee. They are typically processed through payroll software even when the underlying relationship is contractual, because the super guarantee reporting and clearing house processes are designed for employer contributions. Coding contractor super contributions as an AP expense without going through the proper superannuation reporting framework creates compliance risk.

Businesses that fail to pay contractor super on time are liable for the Super Guarantee Charge (SGC), which is calculated on the total base salary (a broader measure than ordinary time earnings), includes a 10 percent per annum interest component from the due date, and an administration charge per employee affected. The SGC is not deductible, unlike normal super contributions -- making the failure to pay on time doubly expensive.

Practical approach for AP teams

The practical approach is to make the contractor versus employee classification and super obligation determination at onboarding, before the first invoice is paid. For contractors determined to be labour-only within the meaning of the act, establish the super contribution process alongside the AP payment process. For contractors with their own teams and genuine business infrastructure, document the classification and the factors relied on, and review it annually or when the nature of the engagement changes materially.

AP software that maintains a flag at the supplier level for whether super applies -- and integrates with the payroll or super clearing house system to trigger the contribution alongside the invoice payment -- prevents the accumulation of unpaid super obligations that can become a significant liability at ATO audit. The ATO cross-references TPAR contractor payment data against super fund contribution data as part of its contractor compliance program.