Salary sacrifice is an arrangement where an employee agrees to receive a lower cash salary in exchange for certain benefits provided by the employer. These benefits can include additional contributions to superannuation, a vehicle, or a work-related device.
How salary sacrifice works
Under a salary sacrifice arrangement, a portion of your pre-tax salary is redirected toward a benefit. For example, if you need a laptop for work or study purposes, your employer can purchase the laptop on your behalf. The cost of that device is deducted from your pre-tax income, reducing taxable income and therefore the amount of tax you have to pay while you get the full value of the item.
The same principle applies to vehicles and other work-related resources. Although the money you get each pay period is lower, the value of the benefit often exceeds the reduction.
Common uses
Typically salary sacrifice is used for one of three purposes:
- Superannuation contributions: Additional payments to superannuation benefit from concessional tax rates, this can significantly increase your retirement savings.
- Work-related items: Equipment such as laptops, mobile phones, or vehicles may be obtained more cost effectively through salary sacrifice than purchasing them after tax.
- Employee benefits: Some employers allow salary sacrifice to cover items that otherwise support work performance, such as professional memberships, subscriptions or work tools which can reduce your expenses.
For more information on superannuation, check out some of our other articles.
Is it possible for part-time workers?
Salary sacrifice is not just for full-time employees. Even if you work part-time or casual hours, it can still be a useful way to manage your pay. The key difference is that your benefits will be smaller because they are based on your income, but the principle is the same.
For example, if you work 15 hours a week at a retail job, you might be able to salary sacrifice a portion of your income to cover a laptop or extra super. While the amounts are smaller than a full-time worker, the arrangement can still help you save money.
Things to consider
Before you rush off to start salary sacrificing, there are some important things to consider first:
- Employer agreement: Salary sacrifice must be arranged with your employer in advance, and not all workplaces offer it as an option.
- Contribution limits: There are annual caps on concessional super contributions, and exceeding these limits may result in additional tax.
- Fringe benefits tax: Some salary sacrifice benefits may be subject to fringe benefits tax, although certain work-related items may be exempt.
- Impact on take-home pay: You’ll receive less cash each pay period, so make sure you budget for the reduction in pay.
It’s also important to remember that salary sacrifice arrangements do not replace the employer’s mandatory superannuation contributions, known as the super guarantee. They represent additional benefits on top of the minimum.
Further information
If you want to learn more about salary sacrifice, there are a few places worth checking. The Australian Taxation Office (ATO) website explains the rules, contribution limits, and tax implications in clear terms. Most super funds also have tools and calculators that let you see how extra contributions could grow over time, which can make planning a lot easier.
The Fair Work Ombudsman also provides guidance on workplace agreements and employee rights, helping you understand what your employer can and cannot offer.
Or you can take a look at some of the other blogs about pay and work on our website here.
