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Salary sacrificing

How salary sacrificing works for employers, including effective arrangements and what can be salary sacrificed.

Last updated 11 January 2023

What is salary sacrificing?

Salary sacrificing is a formal arrangement between you (the employer) and your employee. Your employee agrees to forgo part of their salary or wages in return for benefits of a similar value, such as more super or a car.

Salary sacrificing is sometimes called salary packaging.

Under an effective salary sacrifice arrangement:

  • the employee pays less income tax on their reduced salary or wages
  • you, as the employer, may have to pay fringe benefits tax (FBT) on the fringe benefits you provide
  • salary-sacrificed super contributions are classified as employer super contributions that are taxed in the super fund (instead of being employee super contributions from after-tax income).

Effective salary sacrifice arrangement

To reduce an employee's assessable income through salary sacrificing, the arrangement must be considered 'effective'. Otherwise, the benefits are treated as assessable income received by the employee.

To have an effective salary sacrifice arrangement, you should:

  • enter the arrangement before your employee performs the work
  • have an agreement between you and your employee (usually in writing)
  • make sure the employee can't access the sacrificed salary.

If you have an effective salary sacrifice arrangement with your employee, there may be implications for:

  • your FBT obligations
  • the employee's assessable income
  • GST credits you can claim
  • the payment of employee contributions
  • reporting PAYG withholding through Single Touch Payroll or on your employee’s payment summary.

For more information on the implications of an effective salary sacrificing arrangement for employers, see FBT Guide: 1.8 Salary sacrifice.

Benefits you can salary sacrifice

You can provide any type of benefit to your employee through a salary sacrifice arrangement. Benefits are generally treated as fringe benefits, exempt benefits, or employer super contributions.

Fringe benefits

Some benefits are fringe benefits. You may have to pay FBT on the value of these benefits provided to your employee. Common fringe benefits include:

  • cars
  • goods
  • shares.

Exempt benefits

You don't pay FBT on exempt benefits, such as the following work-related items:

  • a portable electronic device
  • computer software
  • protective clothing
  • a tool of trade.

The item must be primarily for work-related use. Generally you can get the exemption for only one item with a similar function per FBT year (for example, one portable electronic device), unless you are employed in a small business.


Salary sacrificed super contributions under an effective salary sacrifice arrangement are considered employer contributions. These are not fringe benefits if the contributions are made to a complying super fund.

Salary sacrificed super contributions don't:

  • reduce the ordinary time earnings that you use to calculate your employee's super entitlement
  • count towards the super guarantee contributions that you need to make for your employee.

This means the salary sacrificed super contributions are additional to the super you would have paid for your employee without the arrangement.

Any super contributions made for the benefit of an associate, such as the employee's partner, are treated as a fringe benefit. The same applies to any contributions paid to a non-complying super fund.

For more information about salary sacrifice and the tax implications for employers, see:

Reporting salary sacrifice benefits

You may have to report certain reportable fringe benefits through Single Touch Payroll or on your employee’s payment summary.