Zest! / SUPER 101

Super in the gig economy

Taking charge of your super when you work for yourself doesn’t need to be difficult.

By Hannah Tattersall - 3 min and 21 sec read

A little about Hannah

Hannah Tattersall writes about a range of topics, including personal finance, money and business.

If you work for an employer, they’re required by law to make contributions to your chosen superannuation fund, on your behalf. If you work for yourself, as a freelancer or sole trader, super payments are your own responsibility. You could become complacent and not make contributions at all—or you could set up systems that make it easy to take care of your super.

According to the Xero Boss Insights 2021 report1, in June 2020 there were 2.4 million small businesses in Australia, of which 1.5 million were sole traders. Clearly, there are a lot of us who should be making contributions to super.

Determined to save

I’ve recently started freelancing again as a writer and journalist. The last time I freelanced, in my early 30s, I’m not sure I made any contributions to super. I was living in New York and spending everything I earned on enjoying the city that never sleeps.

These days, I’m well aware of the disappointing facts about women and super: women retire with 24 per cent less super than men, according to the Association of Superannuation Funds of Australia2. Mothers in particular often miss out due to time out of the workforce raising children.

I’m determined to do a better job this time around.

Set and forget

Most freelancers I know tend to agree a set-and-forget method works best for superannuation savings.

A writer revealed to me that when freelancing a few years ago, he transferred 10 per cent of every amount he made into a separate bank account, meant for his super fund. He kept this account separate to his earnings and didn’t touch the funds. The amount he saved for super gradually increased.

The trouble was, he never got around to transferring those savings into his super fund. When he found himself short on cash one day, he dipped into the account, kicking off a bad habit that led to him eventually spending the lot.

Keeping track

A common approach for freelancers is to make weekly or monthly after-tax contributions via BPAY from their bank accounts.

A designer friend has set up a spreadsheet with a formula which calculates how much tax and super she needs to put aside when she gets paid. “I have an account for my invoices to be paid into which is separate to my personal account and two savings accounts that I’ve named ‘tax’ and ‘super’,” she says. “When I get paid, I transfer the amounts into those accounts and then I pay it from that into my super annually.” While she admits she does sometimes use her super money to pay bills, she makes sure she sets aside 11 per cent (the super guarantee percentage rate from 1 July 2023) of what she earns for super.

If you’re no good at Excel, the good news is there are now apps that do much the same thing. Hnry, Xero and Sole have functions that enable you to pay a percentage of your income to anyone, including into super, which allows you to set and forget.

Making the most of super

For freelancers with discipline, lump sum payments to super can work. One freelancer I know makes an annual payment to super of $27,500 come end of financial year. He’s been freelancing for more than a decade and now that he’s in his 50s, says he feels he’s inching closer to retirement and wants to make the biggest contribution he can, tax effectively.

That $27,500 amount is generally the maximum you can add to super as a before-tax contribution. While you can go over this cap amount, this means having to pay more tax on the excess contribution amount. You can also use the carry forward rule to make before-tax contributions over the cap amount, as it uses your unused cap amounts from previous years. If your income and before-tax contributions combined is less than $250,000 a year, these contributions are taxed at 15 per cent.

Like employees, freelancers can also choose to make extra payments into super throughout the year. I recently received some dividends from shares and decided to put them straight into super—although it would have been just as easy to spend them.

As for contractors, the Australian Taxation Office stipulates that businesses that pay contractors mainly for their labour, are considered employees for superannuation guarantee purposes, meaning they have to pay super into an allocated superannuation fund.

Why it all matters

For most of us, it’s about financial security—of having enough funds to receive a regular income to maintain a great lifestyle after work. For others, it may be about the comfort of knowing there’s enough money to help manage healthcare or emergency expenses, or even leave a legacy for their loved ones. And the tax advantages are also fully worth thinking about.

 A quick checklist
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Decide when you're going to pay super (weekly, monthly, annually or ad hoc) and what percentage of your earnings you plan to allocate.

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Choose how you’re going to manage payments and set up a process. For example, will you set up a separate bank account and put money aside to pay annually, or set up a BPAY direct transfer from your bank account weekly or monthly?

Tablet device with a finger clicking icon

If you don’t think you can trust yourself to make regular super payments, consider purchasing an app that will make them for you.

1. Xero Boss Insights 2021: Small business and sole traders in the new world, April 2021, The Demographics Group, with commentary by Bernard Salt

2. Media release: ASFA calls for equality in super by 2030, ASFA, 28 February 2022

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The views and opinions expressed in this article are those of the author and do not purport to reflect the views and opinions of Russell Investments.

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