Super Salary Sacrifice: How It Affects Your Gross Pay and Tax

What Is Super Salary Sacrifice?

Super salary sacrifice is an arrangement where you ask your employer to pay part of your pre-tax salary directly into your super fund instead of giving it to you as cash. It’s a way to boost your retirement savings while reducing your taxable income. The sacrificed amount counts as an employer contribution and is taxed at 15% inside the fund (if it stays within the concessional contributions cap), which is often lower than your marginal tax rate.

This is different from the compulsory super guarantee (SG), which your employer must pay on top of your salary. With salary sacrifice, you are choosing to redirect some of your own pay into super. The arrangement must be agreed in writing, and not all employers offer it. Check your award or enterprise agreement – some modern awards allow salary sacrifice, while others may restrict it.

How Super Salary Sacrifice Affects Your Gross Pay

Your gross pay is the total amount you earn before any deductions. When you salary sacrifice super, your gross ordinary-time earnings (the figure used for the Salary Index benchmark) remain the same because the index is based on what you earn before sacrifice. For example, if your annual salary is $100,000 and you sacrifice $10,000, your gross ordinary-time earnings are still $100,000. The sacrifice reduces your taxable income to $90,000, but the index calculation uses the $100,000 figure.

The how the index works page explains that the national line of 100 equals full-time adult ordinary-time earnings of $108,352 per year (from ABS Average Weekly Earnings, May 2026). Your personal index is your gross ordinary-time earnings divided by that national line, times 100. So salary sacrifice does not change your index – it only changes how much of that income you receive as cash.

Tax Implications of Salary Sacrificing Super

Salary sacrifice lowers your taxable income, which can move you into a lower tax bracket. For 2026–27, the 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
• 45% above $190,000

Plus a 2% Medicare levy on your taxable income. By sacrificing part of your salary, you reduce the amount taxed at your marginal rate. For example, if you earn $120,000 and sacrifice $15,000, your taxable income drops to $105,000. You save the 30% tax plus 2% Medicare on that $15,000 – a saving of $4,800. The $15,000 goes into your super and is taxed at 15% ($2,250), so the net benefit is $2,550. Over time, the compounding growth inside super can make this even more valuable.

However, the super guarantee (12% from 1 July 2026) is calculated on your ordinary-time earnings, not your sacrificed salary. If your employer calculates SG on your reduced salary, you might receive less compulsory super. Many employers calculate SG on your pre-sacrifice salary to avoid this, but it’s not guaranteed. Check your contract or award.

Super Salary Sacrifice and the Salary Index

As mentioned, the salary index uses gross ordinary-time earnings before any salary sacrifice. This means your index reflects your earning capacity, not your spending power. For instance, a worker in the mining industry has an industry index of 154.7 (well above the national line), partly because of high base pay and often generous salary sacrifice options. In contrast, retail trade (index 75.9) and accommodation and food services (index 72.5) have lower indices, and salary sacrifice may be less common.

State indices also vary: Western Australia (106.9) and ACT (109.9) are above the national line, while Tasmania (88.6) is below. Your personal index is independent of whether you salary sacrifice – it’s simply your gross ordinary-time earnings relative to the national benchmark.

Example: Super Salary Sacrifice in Practice

Let’s say you work full-time in professional, scientific and technical services (industry index 114.7) and earn $125,000 a year. You decide to salary sacrifice $15,000 into super. Your gross ordinary-time earnings remain $125,000, so your personal index is (125,000 / 108,352) × 100 ≈ 115.4. Your taxable income becomes $110,000. You pay tax on that according to the brackets above, plus Medicare. The $15,000 contribution is taxed at 15% inside super. Your take-home pay (excluding HELP, salary sacrifice adjustments, etc.) would be roughly $81,000 after tax and Medicare, compared to about $87,000 if you didn’t sacrifice. But your super balance grows by $12,750 after the 15% tax, plus investment earnings.

If you are on the national minimum wage ($52,255 annualised, index 48.2), salary sacrifice is less common because the concessional cap is high relative to income, and you may need the cash for living expenses. But even a small sacrifice can be tax-effective if you are in the 30% bracket.

Considerations and Limits

The concessional contributions cap for 2026–27 is $27,500. This includes your employer’s SG (12% of your ordinary-time earnings) plus any salary sacrifice and personal deductible contributions. If you exceed the cap, the excess is taxed at your marginal rate plus an interest charge. You can carry forward unused cap amounts from previous years if your total super balance is under $500,000.

Salary sacrifice also affects your take-home pay, so budget accordingly. It may reduce your eligibility for some government benefits or the Medicare levy surcharge threshold. Always consider your personal circumstances – the pay guides and topics sections on Salary Index can help you understand how different pay arrangements work.

In summary, super salary sacrifice is a powerful tool to save tax and build retirement savings, but it does not change your salary index figure. Your index remains based on your gross ordinary-time earnings, giving a consistent benchmark across the workforce.