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Calculating Salary Sacrifice: How It Affects Your Pay and Salary Index
Learn how to calculate salary sacrifice in Australia, including tax savings and super guarantee, and see where your gross pay sits on the national salary index.
Salary sacrifice does not change your gross ordinary-time earnings used for the salary index; your index figure remains based on your pre-sacrifice salary.
Understanding Salary Sacrifice
Salary sacrifice is an arrangement where you agree to forgo part of your salary in exchange for benefits such as extra super contributions, a car, or other non-cash items. The key to calculating salary sacrifice is understanding how it changes your taxable income and take-home pay, while leaving your gross ordinary-time earnings unchanged for the Salary Index.
What Is Salary Sacrifice?
Under Australian tax law, salary sacrifice reduces your gross salary for income tax purposes. The sacrificed amount is redirected to a benefit that is often taxed differently or tax-free. Common examples include:
- Additional superannuation contributions (concessional)
- Car lease payments (novated lease)
- Electronic devices or work-related items
Your employer must still pay the super guarantee (12% from 1 July 2026) on your ordinary time earnings, which includes the sacrificed amount. This means salary sacrifice does not reduce your employer's super obligation.
How to Calculate Salary Sacrifice
To calculate the net effect of salary sacrifice, follow these steps:
- Determine your gross annual salary – this is your ordinary-time earnings before sacrifice.
- Choose the amount to sacrifice – for example, $10,000 per year into super.
- Calculate tax saved – multiply the sacrificed amount by your marginal tax rate plus Medicare levy (2%). For 2026–27, rates are: 0% up to $18,200; 15% to $45,000; 30% to $135,000; 37% to $190,000; 45% above. Add 2% Medicare.
- Consider the super guarantee – your employer must pay 12% on your ordinary time earnings (including sacrificed amount). That contribution is separate and does not reduce your take-home pay.
- Estimate new take-home pay – subtract the sacrificed amount and the tax saved from your original net pay.
Example: Salary Sacrifice into Super
Let’s say you earn $120,000 per year (index 110.8, since $120,000 / $108,352 × 100 ≈ 110.8). You decide to salary sacrifice $10,000 into super.
- Original taxable income: $120,000
- Sacrificed amount: $10,000
- New taxable income: $110,000
- Marginal tax rate (including Medicare): 32% (30% + 2%)
- Tax saved: $10,000 × 32% = $3,200
- Your take-home pay increases by $3,200 per year (or $61.54 per week) because you pay less tax.
Your super account receives the $10,000 sacrifice plus the 15% contributions tax (if applicable), but that is a separate calculation. Your Salary Index figure remains 110.8 because it is based on your pre-sacrifice gross earnings.
Impact on the Salary Index
The salary index is a benchmark of full-time adult ordinary-time earnings, set at 100 for the national average of $108,352 per year (ABS Average Weekly Earnings, May 2026). Your personal index is your gross annual salary divided by $108,352, times 100. Salary sacrifice does not alter this gross figure, so your index stays the same. For example, a retail worker on $75,000 (index 69.2) who salary sacrifices $5,000 still has an index of 69.2. The index reflects the role’s market rate, not your tax arrangement.
Considerations for Awards and Super
If you are covered by a modern award, your employer must still pay you at least the award minimum cash wage after salary sacrifice. For instance, the national minimum wage from 1 July 2026 is $26.44 per hour ($1,004.90 per week, index 48.2). You cannot sacrifice below that cash amount. Similarly, award junior rates (e.g., $18.06 per hour for an 18-year-old) set a floor.
Super guarantee contributions are calculated on your ordinary time earnings, which include salary sacrifice amounts. So if you sacrifice $10,000, your employer must still pay 12% on that $10,000 ($1,200) into your super. This is a key point when calculating salary sacrifice – the super guarantee does not reduce your take-home pay, but it boosts your retirement savings.
Tax and Medicare Levy
Your take-home pay after salary sacrifice is a resident estimate using the tax-free threshold and a flat 2% Medicare levy. It ignores HELP repayments, the Medicare levy surcharge, and other adjustments. For a more precise calculation, use the ATO’s tax tables or speak to a tax professional.
State and Industry Context
Your salary index can also be compared to state benchmarks. For example, if you work in Western Australia (index 106.9) but earn $120,000 (index 110.8), you are above the state average. Salary sacrifice does not change that comparison. See states for more details.
Summary
Calculating salary sacrifice involves subtracting the sacrificed amount from your gross salary, applying your marginal tax rate to find the tax saving, and noting that your salary index figure remains unchanged. Always check your award or agreement for minimum cash wage requirements, and remember that super guarantee applies to your full ordinary time earnings.
For more on how pay benchmarks work, read how the index works or browse pay guides for your industry. If you are in a specific sector like health care or education, the index can help you see where your role sits nationally.
Questions people ask
Does salary sacrifice affect my salary index figure?
No. The salary index is calculated from your gross ordinary-time earnings before any salary sacrifice arrangement. For example, if your annual salary is $108,352 (index 100), sacrificing $10,000 into super does not change that index figure. Your index remains 100, even though your taxable income drops to $98,352.
How do I calculate the tax benefit of salary sacrifice?
First, determine the amount you sacrifice. Multiply that amount by your marginal tax rate (including Medicare levy). For 2026–27, if you earn $120,000 (marginal rate 30% plus 2% Medicare), sacrificing $10,000 saves you $3,200 in tax. But also check if the sacrifice reduces your super guarantee (employer must still pay 12% on your ordinary time earnings, which includes the sacrificed amount).
Is salary sacrifice allowed under all awards?
Not automatically. Many modern awards allow salary sacrifice by agreement, but some restrict it or require the employee to still receive at least the award minimum cash wage. Always check your award or enterprise agreement. The Fair Work Ombudsman provides guidance, and your employer must ensure you are not worse off overall.