Salary Packaging

What is Salary Packaging?

Salary packaging is used in a way which enables employees to receive benefits so as to maximise their disposable income. The most common way of achieving this is where the employee forgoes or "sacrifices" taxable salary for benefits paid by the employer.

What is Salary Sacrifice?

A salary sacrifice is an arrangement between the employer and the employee, where the employee agrees to forego part of their taxable salary in return for the employer providing benefits of a similar cost to the employee. The sacrifice works because the employee usually places greater value on the benefit they receive than its cost to the employer.

An example of this is when the employer makes the equivalent contribution to the employee's super fund and the employee will agree to accept salary lowered by the amount of contribution, instead of an employee making a superannuation contribution upon which income tax has been paid. Therefore the employee pays income tax on the reduced salary.