What is a salary sacrifice? How it affects your gross pay, super and tax

What is a salary sacrifice?

A salary sacrifice is an agreement between you and your employer where you choose to give up part of your before-tax salary in return for a benefit of equal value. The benefit could be extra super contributions, a car, a laptop, or even childcare. Because the sacrificed amount is taken from your gross pay before tax is calculated, your taxable income goes down. That means you pay less income tax and Medicare levy, but your take-home cash pay is also lower.

Salary sacrifice is common in the public sector, universities, and some private companies. It is not a way to avoid tax altogether – the benefit itself may be subject to fringe benefits tax (FBT) if it is not exempt. The most popular and tax-effective form is salary sacrifice into superannuation.

How salary sacrifice fits into your gross pay

Your gross pay is the total amount you earn before any deductions. When you salary sacrifice, you agree to reduce that gross amount. For example, if your annual salary is $108,352 (the national line on the Salary Index), and you sacrifice $10,000 into super, your gross pay for tax purposes becomes $98,352. Your employer still pays you the cash part of your salary, but the sacrificed amount goes directly into your super fund as an employer contribution.

Your pay guides will show your award or agreement rate, but salary sacrifice is a separate arrangement on top of that. It does not change your base rate of pay. The national minimum wage from 1 July 2026 is $26.44 per hour, or $52,255 annualised (index 48.2). If you are on that wage, salary sacrifice is still possible, but the benefit must not reduce your pay below the minimum entitlement. Fair Work rules say salary sacrifice cannot take you below the award floor.

Impact on super guarantee

From 1 July 2026, the super guarantee is 12% of your ordinary time earnings (OTE). When you salary sacrifice into super, the sacrificed amount is not counted in OTE. So if your OTE is $98,352 after sacrifice, your employer pays 12% on that: $11,802.24. Without sacrifice, they would pay 12% on $108,352: $13,002.24. The difference is $1,200 less in super guarantee. However, you still get the $10,000 sacrificed into super, so total super contributions become $21,802.24, compared to $13,002.24 without sacrifice. That is a net gain of $8,800 in super, but your take-home cash is lower.

You need to watch the concessional contributions cap. For 2026–27, the cap is $30,000. If your total employer contributions (including salary sacrifice) exceed that, the excess is taxed at your marginal rate. The how the index works page explains how super fits into overall remuneration.

Tax effects of salary sacrifice

Because salary sacrifice reduces your taxable income, you move into a lower tax bracket or pay less at your marginal rate. For a resident in 2026–27, tax rates are:

• $0–$18,200: nil
• $18,201–$45,000: 15c per $1 over $18,200
• $45,001–$135,000: 30c per $1 over $45,000
• $135,001–$190,000: 37c per $1 over $135,000
• Over $190,000: 45c per $1 Plus a 2% Medicare levy.

If you earn $108,352 and sacrifice $10,000, your taxable income is $98,352. Your tax (excluding Medicare) is about $22,305, compared to $25,605 without sacrifice – a saving of $3,300. Medicare levy also drops by $200. The sacrificed $10,000 is taxed inside super at 15% ($1,500), so the total tax saving is about $2,000 after accounting for that.

State and industry differences

Your salary sacrifice decision may depend on where you live and what industry you work in. The states page shows that average earnings vary: ACT index 109.9 ($119,090), WA 106.9 ($115,825), NSW 101.2 ($109,658). If you are in a high-earning state, the tax savings from salary sacrifice can be larger because you are in a higher bracket. Similarly, industries like mining (index 154.7) have higher pay, making salary sacrifice more attractive. In retail (index 75.9) or accommodation (72.5), lower pay means less tax benefit.

Things to watch out for

• Fringe benefits tax: If you sacrifice for a car or other non-super benefit, your employer may have to pay FBT, which they might pass on to you through a lower salary package.
• Award and agreement rules: Some awards or enterprise agreements restrict salary sacrifice or require a written agreement.
• Centrelink and other payments: Salary sacrifice reduces your adjusted taxable income, which can affect family tax benefit, child care subsidy, or other means-tested payments.
• Super guarantee base: As noted, sacrificing into super reduces the base for SG, so you may get less compulsory super. Always model the numbers.

How the Salary Index helps

The Salary Index uses a benchmark of 100 for full-time adult ordinary-time earnings ($108,352). Your salary sacrifice arrangement does not change your index figure because the index is based on gross ordinary-time earnings before any sacrifice. But understanding where your pay sits against the national line helps you decide whether salary sacrifice is worthwhile. If you are below the national line, the tax savings are smaller. If you are well above, the benefits increase.

Final thoughts

Salary sacrifice is a legitimate way to structure your pay to save tax and boost super. It works best when you understand the trade-off between lower take-home cash and higher super or other benefits. Always check the concessional cap, your award conditions, and the impact on your super guarantee. Talk to your employer or a financial adviser to see if it suits your situation.