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Being Clear About Salary Sacrifice Arrangements

There are a number of benefits for both employers and employees when agreeing to a salary sacrifice arrangement – from recruiting and retaining top employees, to saving on taxes and increasing take home salary. But before an employer or employee enters into one of these arrangements, it’s important that both parties fully understand just what a salary sacrifice is: 

What Is A Salary Sacrifice?

 A salary sacrifice arrangement between an employee and his or her employer entitles them to certain benefits as long as they “forgo” part of their salary or wages. The benefits that an employee can enjoy often far exceed the after-tax salary they otherwise would have received, particularly as all benefits are provided to them at a pre-tax cost (i.e. no GST or income tax).

 Some common benefits include:

  •  Healthcare benefits
  • Childcare expenses
  • Disability pay
  • Cars and car loans
  • Electronics and other “tools of the trade”

 Many employees also opt to have a portion of their pre-tax wages go into their Super account, which benefits both the employer and the employee.

 Getting Started

 Make The Arrangements Before You Start The Job

First and foremost, it’s important for employees, in particular, to note that the arrangement should be put in place before any work is performed in order for it to go into effect. If, after a job has commenced, the benefits are then offered, the employer may choose to not provide those benefits to the employee for any work completed in the time prior to the arrangement coming into effect.

 Make A Contract

Though a salary sacrifice can be entered into with a verbal agreement, it’s always a wise idea for employees and employers to get it in writing. A written agreement ensures both parties understand what was, and what wasn’t, part of the agreement should any future disagreement arise.

 Permanent employees can renegotiate the terms of their arrangement at any time, while any employee with a renewable contract can renegotiate the terms before each renewal.

 What If The Fringe Benefit Has Not Been Provided?

 Should an employee find themselves in a situation where they have not benefitted from the sacrificed salary in any way, then the amount of that benefit will be cashed out as salary and will then be taxed as ordinary income.

 To find out more about salary sacrifice arrangements, contact us on 1300 664 323.