What is Salary Sacrifice?
Salary sacrifice is a tax-effective way to make your salary go further. Also known as salary packaging, it allows you to use a portion of your pre-tax income to pay for approved expenses. This can reduce your taxable income, which may increase your take-home pay.
Salary sacrifice is widely used across industries like healthcare, education, government, and not-for-profits, and can be a smart strategy for both employees and employers. In this guide, we explain what salary sacrifice is, how it works, and how tools like SalaryMax make it easier to manage.
Curious how it compares to salary packaging?
How does Salary Sacrifice work?
Salary sacrifice is a formal agreement between you and your employer where you give up part of your regular salary in return for certain non-cash benefits. These benefits are paid from your pre-tax income, which can reduce your taxable income and increase your take-home pay.
In Australia, the terms salary sacrifice and salary packaging are often used interchangeably, and they both refer to this same arrangement. It’s commonly offered in sectors such as healthcare, education, government, and not-for-profit organisations, though it may be available in other industries too.
The most popular benefits you can salary sacrifice include:
Living Expenses: For eligible employees in public benevolent institutions (PBIs), this can include everyday costs like groceries, fuel, and utility bills.
Meal & Entertainment: You can use pre-tax dollars to cover expenses like dining out or holiday accommodation, depending on your employer’s policy and your eligibility.
Prepaid card solutions like the SalaryMax Prepaid Card help streamline the process. With built-in spend restrictions, digital delivery, and ATO-aligned controls, SalaryMax makes it easy to stay compliant while giving employees the flexibility to use their benefits in a way that suits them.
Learn the difference between Salary Packaging vs Salary Sacrifice.
Benefits of Salary Sacrifice
For employers:
- Offer a more competitive benefits package
- Attract and retain good staff
- Reduce payroll tax and Fringe Benefits Tax (FBT) in some cases
- Save time with automated tools and clear reporting
- Improve your standing as an employer of choice
For employees:
- Offer a more competitive benefits package
- Support staff wellbeing and retention
- Reduce payroll tax and Fringe Benefits Tax (FBT) in some cases
- Save time with automated tools and clear reporting
- Improve your standing as an employer of choice
What can you Salary Sacrifice in Australia?
Salary sacrifice can cover a range of expenses depending on your role, industry and employer arrangements. While common items may include things like super contributions or work-related purchases, eligibility and limits vary.
To ensure you have the most up-to-date information, we recommend visiting the Australian Taxation Office (ATO) website.
Solutions like SalaryMax support compliance by applying merchant category controls, so your salary packaging stays aligned with current ATO rules.
Who is Salary Sacrifice for?
Simplify Salary Sacrifice with SalaryMax
SalaryMax makes salary sacrifice straightforward and removes complexity for employers and employees alike.
From audit support to FBT-year rollover, SalaryMax is built for compliance and ease.
Get in touch today to find out how we can simplify salary sacrificing for your business