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By: George Bendall
10 Sep 2026 5 min read
While the draft ruling focuses on how superannuation obligations should be calculated, the recent updates highlight the ATO’s continued focus on contractor arrangements. With Payday Super set to increase compliance obligations, businesses should review their existing arrangements.
Many businesses are surprised at the breadth of the operation of the SG law, which applies to genuine contracting arrangements that may otherwise not create obligations from a Fair Work or broader employment tax law perspective.
Under the Superannuation Guarantee (Administration) Act 1992, a worker can still be treated as an employee if they are engaged under a contract that is wholly or principally for their labour. This is commonly referred to as the ‘extended definition’ of employee.
In our recent articles, we highlighted that these rules could apply across a broad range of industries and engagement models, including independent contractors, entertainers, sportspeople and influencers.
Once the obligation is established, the next challenge is identifying which payments under a contract are subject to SG, and which are excluded.
The draft determination focuses on how to calculate a contractor's ‘qualifying earnings’, where the contractor is treated as an employee under the extended SG rules.
The ATO's view is that qualifying earnings include payments that are ‘in respect of the person's labour’ under the contract.
Importantly, the ATO acknowledges that contractor invoices often bundle together multiple components, such as labour, equipment and tools, materials and consumables, travel expenses, GST payable, and other reimbursable costs.
Under the draft guidance, businesses must identify the portion of a payment that relates to labour, and calculate SG on that amount. Payments that genuinely relate to equipment, materials or other non-labour components would generally not form part of qualifying earnings.
Historically, many businesses have adopted a simple approach of either paying SG on the entire invoice, or simply not paying SG at all.
The ATO's draft guidance introduces a more nuanced approach.
Where the labour component is clearly identifiable, businesses should use that amount. However, where labour and non-labour components are not separately identified, the ATO expects businesses to determine a reasonable value for the labour component. The draft determination provides examples of using market rates or industry award rates to estimate labour where necessary.
This means businesses may need more detailed supporting documentation than they have historically maintained.
A contractor invoices:
Under the ATO's draft approach, SG would generally apply to the labour component of $1,500, but not to the equipment or material components, provided those amounts genuinely represent separate non-labour costs.
However, if the contractor simply issues a single invoice for $2,000 without any breakdown, the business may need to establish a reasonable methodology to determine how much of the payment relates to labour.
The timing of this guidance is significant for any businesses with contractor engagements.
Under Payday Super, employers will generally be required to pay SG much closer to the date wages are paid. This will reduce the ability to identify and correct issues before reporting periods end.
For contractor arrangements, businesses will increasingly need to determine:
Getting this wrong could result in SG shortfalls, or Superannuation Guarantee Charge liabilities, penalties and interest.
Businesses that engage contractors should consider:
The release of SGD 2026/D1 is another reminder that contractor superannuation remains a significant compliance risk area. While the draft guidance does not change the underlying law, it provides valuable insight into how the ATO expects businesses to calculate SG obligations where contractors are captured by the extended employee provisions.
*Sports Persons and Entertainers
Article contributed to by Tim Jolly - Employment Solutions
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