Salary Sacrifice vs Salary Packaging: What's the Difference Under Awards and the National Minimum Wage?

Salary sacrifice vs salary packaging: what’s the difference?

When you hear the terms salary sacrifice and salary packaging, you might think they mean the same thing. In everyday talk, people often use them interchangeably. But there is a subtle difference. Salary sacrifice is a specific type of salary packaging where you give up part of your pre-tax salary in return for a benefit, such as a car, laptop, or extra super contributions. Salary packaging is the broader term that covers any arrangement where your employer provides benefits in place of cash salary, including salary sacrifice, but also things like novated leases, meal cards, or even a company phone.

Both arrangements affect your taxable income, but they do not change your award rate or the national minimum wage. That’s a critical point for anyone covered by a modern award or the National Minimum Wage Order.

Awards and the national minimum wage

Australia’s pay system is built on a foundation of awards and the national minimum wage. From 1 July 2026, the national minimum wage is $26.44 per hour, or $1004.90 per week, which gives an annualised figure of $52,255. On the Salary Index, that’s an index of 48.2, meaning it’s just under half of full-time adult ordinary-time earnings (index 100, $108,352 per year).

Modern awards set minimum pay rates for specific industries and occupations. They almost always pay more than the national minimum wage. For example, the entry-level award floor is $25.74 per hour, but many awards have higher rates. Award minima rose by 4.75% from 1 July 2026. If you are covered by an award, your employer must pay you at least the award rate, regardless of any salary sacrifice or packaging arrangement.

How salary sacrifice interacts with awards

Salary sacrifice reduces your taxable income, not your gross pay for award purposes. Your base rate of pay – the amount used to calculate overtime, penalty rates, and super – must remain at or above the award minimum. The Fair Work Ombudsman is clear: a salary sacrifice arrangement cannot bring your base rate below the award or national minimum wage.

For example, if your award rate is $30 per hour and you salary sacrifice $5 per hour for a car, your employer still records your gross pay as $30 per hour for award compliance. The $5 is taken pre-tax and goes to the car provider. Your take-home cash is lower, but your award entitlements are protected.

Salary packaging and the national minimum wage

Salary packaging works the same way. Whether you package a laptop, a phone, or extra super, the value of the benefit is deducted from your pre-tax salary. Your award or minimum wage rate stays unchanged. The Australian Taxation Office (ATO) sets rules for fringe benefits tax (FBT), but those rules don’t affect your minimum pay.

One common packaging option is salary sacrifice into super. From 1 July 2026, the super guarantee is 12% on ordinary-time earnings, up to a maximum contribution base of $270,830. If you salary sacrifice extra super, your employer still pays the 12% on your ordinary-time earnings (which may be reduced by the sacrifice). Some awards protect the super base, so check your award or agreement.

Take-home pay and the salary index

Your take-home pay after tax depends on your taxable income. For 2026–27, resident tax rates (excluding Medicare) are: nil up to $18,200; 15% from $18,201 to $45,000; 30% from $45,001 to $135,000; 37% from $135,001 to $190,000; and 45% above $190,000. Plus a 2% Medicare levy. Salary sacrifice lowers your taxable income, so you pay less tax. But remember, your award or minimum wage rate is not affected.

The Salary Index compares your gross annual earnings to the national line of $108,352 (index 100). If you earn the national minimum wage, your index is 48.2. If you earn the average for your state or industry, you can see where you sit. For example, the states page shows NSW at 101.2, Victoria at 98, and WA at 106.9. Industries like retail trade index 75.9, while mining is 154.7.

Practical examples

Imagine you work in retail, covered by the General Retail Industry Award. Your award rate is, say, $28 per hour. You decide to salary sacrifice a car through a novated lease. Your employer deducts $3 per hour pre-tax. Your gross pay for award purposes is still $28 per hour. Your taxable income is $25 per hour, so you pay less tax. But your award entitlements – overtime, penalty rates, super – are calculated on $28 per hour.

Now imagine you are on the national minimum wage, $26.44 per hour. You cannot salary sacrifice an amount that would bring your base rate below that. In practice, you could sacrifice a small amount, but the benefit might be minimal. Most salary packaging is used by people earning above the award or minimum.

Key differences at a glance

• Salary sacrifice: giving up pre-tax salary for a specific benefit (e.g., super, car).
• Salary packaging: any arrangement where benefits replace cash salary, including sacrifice.
• Award compliance: your base rate must stay at or above the award or minimum wage.
• Tax effect: lowers taxable income, reduces tax and Medicare levy.
• Super guarantee: calculated on ordinary-time earnings, which may be reduced by sacrifice.

For more detail on how awards set pay, see the pay guides page. If you want to compare your earnings to the national line, use the how the index works page. And for a broader look at pay topics, visit topics.

Final thoughts

Understanding salary sacrifice vs salary packaging is important for anyone negotiating a pay package or considering benefits. The key takeaway: neither arrangement changes your award or minimum wage rate. They only affect your taxable income and take-home cash. Always check your award or agreement, and talk to your employer or a tax professional before signing up. The salary index helps you see where your gross pay sits, but remember that your award rate is the floor, not the ceiling.