Salary sacrifice

How it works, and why people do it

The employee agrees, prospectively and in writing, to swap future salary for a benefit. Because the swapped amount never arrives as taxable salary, the employee's income tax falls; the benefit may then be taxed differently (concessionally, fully, or not at all) depending on what it is and where. Super and pension contributions are the flagship case in both Australia and the UK precisely because they keep favourable treatment on the sacrificed amount (though the UK has announced a cap on the National Insurance advantage of pension salary sacrifice from April 2029).

The Australian guardrails

Three rules do most of the protective work. The arrangement must be prospective: sacrificing salary already earned does not work. Salary-sacrificed super counts as employer contributions toward the concessional cap, so enthusiastic packaging can breach it. And since 2020, employers cannot use sacrificed amounts to reduce their superannuation guarantee obligation; SG is calculated on the pre-sacrifice base, a position the July 2026 payday super rules hard-wire by including salary-sacrificed super in the qualifying earnings base. Non-super benefits (vehicles, parking) generally attract fringe benefits tax, which is the employer's cost to price before agreeing.

What both sides should check

Employees: the effect on borrowing capacity and government thresholds that key off taxable income, and what happens to the arrangement on leave or exit. Employers: FBT exposure, payroll configuration (the pre-sacrifice base for SG, the post-sacrifice base for tax), and that the paperwork is genuinely in place before the first adjusted payslip. Salary sacrifice rewards administration and punishes improvisation.