Defence salary sacrifice explained: how it compares to awards and the national minimum wage

What is defence salary sacrifice?

Defence salary sacrifice is an arrangement where a member of the Australian Defence Force agrees to forgo part of their pre-tax salary in exchange for benefits such as a car, super contributions, or other fringe benefits. The sacrificed amount is not subject to income tax, which can increase take-home pay. It is a common strategy for ADF members to reduce tax liability, but it does not change your gross ordinary-time earnings – the figure used to calculate your salary index.

How the salary index works

The Salary Index compares gross yearly ordinary-time earnings against the national line of 100, which is set at $108,352 per year (based on ABS Average Weekly Earnings, May 2026). For example, the national minimum wage from 1 July 2026 is $52,255 per year, giving an index of 48.2. Defence pay is generally higher, but because the ADF uses its own remuneration system, a precise index figure for defence salary sacrifice is uncertain. The index always uses your gross pay before any salary sacrifice deductions.

Awards versus the national minimum wage

Most Australian workers are covered by a modern award or an enterprise agreement that sets minimum pay rates above the national minimum wage. The national minimum wage is the legal floor – $26.44 per hour from 1 July 2026. Modern award rates vary by industry and classification. For example, the retail trade industry has an index of 75.9, while professional services index is 114.7. Defence force members are not covered by modern awards; instead, the Defence Force Remuneration Tribunal (DFRT) determines pay and conditions. These rates are significantly higher than the national minimum wage, reflecting the unique nature of military service.

How defence salary sacrifice interacts with awards

Even though defence personnel are not under a modern award, the principle remains: salary sacrifice cannot reduce your gross pay below the minimum set by the DFRT. The tribunal sets a base salary for each rank and classification. That base salary is your ordinary-time earnings. If you salary sacrifice part of it, your employer must still pay the full base amount to you (or on your behalf for benefits). The sacrificed amount is simply redirected, not reduced. So your gross earnings for index purposes stay the same.

Practical example

Imagine a defence member earning a gross salary of $90,000 per year. They choose to salary sacrifice $15,000 into super. Their taxable income becomes $75,000, but their gross ordinary-time earnings remain $90,000. The salary index for that member would be calculated as ($90,000 / $108,352) × 100 ≈ 83.1. This is below the national average but above the minimum wage index of 48.2. The sacrifice does not change the index figure because it is based on pre-sacrifice earnings.

State and industry context

Your salary index can also be compared to state benchmarks. For instance, the ACT has an index of 109.9, while Tasmania is 88.6. Defence members are posted across Australia, so their index may vary by location if they receive locality allowances. However, the base pay is national. The states page shows how each region compares. Similarly, industries like mining (154.7) or education (105.5) give context. Defence pay is not listed as a separate industry in the reference, but it likely falls between professional services and public administration.

Tax and super considerations

Salary sacrifice affects your take-home pay and tax. For 2026–27, resident tax rates (excluding Medicare) are: nil up to $18,200, 15% from $18,201 to $45,000, 30% to $45,001 to $135,000, 37% to $190,000, and 45% above. The Medicare levy is 2%. Salary sacrifice reduces your taxable income, potentially lowering your tax bracket. However, it does not reduce your super guarantee (SG) obligation. The SG is 12% of ordinary-time earnings, and salary sacrifice contributions count toward that. Your employer must still pay the full SG on your gross earnings, but the sacrificed amount can satisfy part of it.

Is defence salary sacrifice right for you?

It depends on your financial goals. Salary sacrifice can be beneficial for reducing tax, especially if you are in a higher bracket. But it may affect your ability to access certain benefits or loans that rely on gross income. Always check with a financial adviser familiar with ADF conditions. The pay guides on this site explain general salary sacrifice rules, but defence-specific arrangements are set by the DFRT and the ADF salary packaging policy.

Conclusion

Defence salary sacrifice is a tax strategy, not a pay cut. Your gross ordinary-time earnings – the basis of the salary index – remain unchanged. The national minimum wage and award rates are floors that salary sacrifice cannot breach. For defence members, the DFRT ensures base pay is well above those floors. Understanding how your index compares to the national line of 100 helps you see where your pay sits, but remember that salary sacrifice does not alter that number. For more on how the index works, see how the index works.