Salary packing: what it means when reading a job ad and comparing offers

What is salary packing?

Salary packing – also called salary sacrificing or total remuneration packaging – is an arrangement where you and your employer agree that you will receive less before-tax salary in exchange for certain benefits of similar value. The Australian Taxation Office (ATO) explains that this reduces your taxable income, so you may pay less tax. Common packaged benefits include cars, superannuation contributions, laptops, and childcare. Employers may need to pay fringe benefits tax (FBT) on some benefits, and they might ask you to make an employee contribution to reduce that FBT.

From 1 April 2027, work-related items (like laptops and phones) provided through salary sacrifice will no longer be exempt from FBT. This change may affect how employers structure packages.

How salary packing affects your take-home pay

The ATO provides a clear example for the 2025–26 year. Sam earns $65,000 annually. Without salary packing, his taxable income is $65,000, income tax is $10,288, Medicare levy $1,300, and after paying $11,500 in car expenses he has net disposable income of $41,912.

If Sam salary-packages a car worth $17,353 (scenario 2), his taxable income drops to $47,647, tax to $5,082, Medicare to $953, and he has no car expenses. Net disposable income is $41,612 – slightly less than without packaging.

But if Sam makes an employee contribution of $7,000 (scenario 3), the salary sacrifice amount is only $4,145, taxable income $60,855, tax $9,045, Medicare $1,217, and after the contribution he has $43,593 net disposable income – $1,681 better than no packaging.

The lesson: salary packing can improve your net position, but the structure matters. Employee contributions can reduce FBT and boost your disposable income.

Comparing job offers with salary packing

When reading a job ad, look beyond the base salary. Some employers advertise a total remuneration package that includes the value of benefits. For example, a role might offer $80,000 base plus a car benefit worth $15,000. Your taxable income would be $80,000, but you receive a car. Compare that to a $95,000 salary with no benefits – you’d pay tax on the full $95,000 and then have to fund a car yourself.

Use the Salary Index to see where a base salary sits against the national line (100 = $108,352). A $80,000 base gives an index of about 74. But if you factor in the car benefit, your total remuneration might be $95,000 (index 88). However, the index is based on gross ordinary-time earnings, not the value of packaged benefits. So it’s a starting point, not the full picture.

Also consider super. Salary sacrificed super contributions are additional to the super guarantee (12% from 1 July 2026). Your employer must still pay the guarantee on your ordinary-time earnings. So if you sacrifice $10,000 into super, you still get the 12% on your base salary. That can boost your retirement savings.

Salary packing and the Salary Index

The Salary Index measures gross ordinary-time earnings before tax and before any salary sacrifice. If you salary-pack $10,000 of your $100,000 salary, your taxable income falls to $90,000, and your index drops from 92 to 83. But you receive benefits worth $10,000. The index doesn’t capture that value, so it’s not a direct measure of your living standard.

When comparing offers, calculate your net disposable income using the ATO’s method. Include any employee contributions and the value of benefits you would otherwise pay for yourself. The pay guides from Fair Work Ombudsman can help you check minimum award rates, but salary packing is separate from award entitlements.

Other considerations

Salary packing can affect:

• Medicare levy surcharge (based on income for surcharge purposes, which includes reportable fringe benefits)
• Study and training loan repayments
• Some tax offsets
• Child support payments
• Government benefits like Family Tax Benefit

Check with the ATO or a qualified adviser before entering an arrangement. Also note that salary packing must be agreed before you do the work – you can’t sacrifice salary you’ve already earned.

For more on how pay compares across industries and states, explore the Salary Index. And if you’re looking at a job ad that mentions salary packing, remember to look at the whole package, not just the base figure.