What Is Salary Sacrificing? A Guide to Gross Pay, Super, and Tax

What Is Salary Sacrificing?

Salary sacrificing is an arrangement where you agree to give up part of your gross salary in exchange for a benefit provided by your employer. Instead of receiving that portion as cash, you receive something else—like extra super contributions, a car, or a laptop. The sacrificed amount is not subject to PAYG withholding, so your taxable income goes down. But the benefit may be subject to fringe benefits tax (FBT), which your employer may or may not pass on to you.

This guide explains how salary sacrificing interacts with gross pay, superannuation, and tax, using the Salary Index as a benchmark for Australian earnings.

How Salary Sacrificing Affects Gross Pay

Your gross pay is the amount you earn before tax and other deductions. When you salary-sacrifice, your gross pay on paper is lower because you have agreed to receive a non-cash benefit instead. For example, if your annual salary is $108,352 (the national line, index 100) and you sacrifice $15,000 into super, your gross pay for tax purposes becomes $93,352. Your employer still pays the super guarantee on your original salary, but your take-home cash is less because the sacrificed amount goes into super.

The how the index works page explains that the index compares gross ordinary-time earnings. Salary sacrificing does not change your ordinary-time earnings; it changes how those earnings are allocated. The index remains based on your pre-sacrifice salary unless your employer reduces your base pay. Most salary-sacrifice arrangements are structured as a reduction in salary in exchange for a benefit, so your ordinary-time earnings for award purposes stay the same.

Salary Sacrificing and Superannuation

One of the most common uses of salary sacrificing is to boost super. You can sacrifice part of your pre-tax salary into your super fund. These contributions are taxed at 15% inside the fund, up to the concessional cap of $30,000 per year (2026–27). For most people, 15% is lower than their marginal tax rate, so it’s a tax-effective way to save for retirement.

Example: A worker earning $108,352 (index 100) is in the 30% tax bracket (plus 2% Medicare levy). If they sacrifice $10,000 into super, they save $3,200 in tax and Medicare (32% of $10,000) but pay $1,500 in contributions tax (15% of $10,000). Net saving: $1,700. Their super balance grows by $8,500 after tax. Their taxable income drops to $98,352, which is still above the 30% threshold but reduces their overall tax bill.

However, salary sacrificing into super does not reduce your employer’s super guarantee obligation. Your employer must still pay 12% of your ordinary-time earnings (the pre-sacrifice amount) into super. If you sacrifice part of your salary into super, that amount counts towards the super guarantee if it is made as a salary-sacrifice contribution. Check your award or agreement.

Tax Implications of Salary Sacrificing

The main tax benefit of salary sacrificing is that the sacrificed amount is not included in your assessable income. This lowers your marginal tax rate if the reduction pushes you into a lower bracket. For 2026–27, the resident tax rates (excluding Medicare) are:

• $0–$18,200: nil
• $18,201–$45,000: 15%
• $45,001–$135,000: 30%
• $135,001–$190,000: 37%
• $190,001+: 45%

Plus a 2% Medicare levy on taxable income.

If your salary is $108,352 (index 100) and you sacrifice $20,000, your taxable income becomes $88,352. You stay in the 30% bracket but pay less tax overall. The sacrificed amount is not subject to PAYG withholding, so your employer withholds less tax each pay period.

But be aware: the benefit you receive may be a fringe benefit. The employer pays FBT at 47% on the taxable value of the benefit. Some employers pass this cost on to you by reducing your salary further. Others absorb it. Always ask your employer how FBT is handled.

Salary Sacrificing and the National Line

The Salary Index uses full-time adult ordinary-time earnings as the benchmark (index 100 = $108,352 per year). When you salary-sacrifice, your gross pay for tax purposes drops, but your total remuneration package may be higher if the benefit is valuable. The index does not capture non-cash benefits, so comparing your index before and after sacrificing can be misleading. For example, a worker on index 100 who sacrifices $15,000 for a car might have a cash index of about 86, but their total package (including the car) could be worth more than index 100. The index is a measure of cash earnings, not total compensation.

Industry and State Considerations

Salary sacrificing is more common in industries where benefits like cars or super are standard. For instance, in the professional, scientific and technical services sector (index 114.7), many employees have salary-sacrifice arrangements. In retail trade (index 75.9), it is less common because wages are lower and awards may restrict it.

State differences matter because of cost of living and award coverage. In Western Australia (index 106.9) and the ACT (index 109.9), higher average earnings mean more room to sacrifice. In Tasmania (index 88.6), lower earnings may limit the benefit. Check your state and industry guides for typical pay levels.

Rules and Limits

Salary sacrificing cannot reduce your pay below the relevant award minimum or the national minimum wage. From 1 July 2026, the national minimum wage is $26.44 per hour, $1,004.90 per week (index 48.2). Your base pay after sacrificing must still meet that floor. Also, award entitlements like overtime, penalty rates, and leave are calculated on your ordinary-time earnings, not your sacrificed salary.

The ATO caps concessional super contributions at $30,000 per year. If you exceed this, the excess is taxed at your marginal rate plus an interest charge. For salary-sacrificed super, you must also meet the choice of fund rules.

Example: Salary Sacrificing a Car

Suppose you earn $108,352 (index 100) and enter a novated lease for a car worth $40,000. The lease payments, running costs, and FBT are bundled into a monthly amount. Your employer reduces your salary by, say, $15,000 per year to cover the lease. Your taxable income becomes $93,352. The car is a fringe benefit, and your employer pays FBT on the private use portion. If the employer passes the FBT cost to you, your salary reduction may be larger. Your take-home cash is lower, but you have a car. The index of your cash pay drops to about 86, but your total remuneration is higher.

Summary

Salary sacrificing is a way to swap cash for benefits, often saving tax. It affects your gross pay, super, and tax position. Use the pay guides to understand how your award treats salary sacrificing, and talk to your employer or a tax adviser before setting up an arrangement. The topics page has more on related subjects like super and tax.

Remember: the salary index is a benchmark for cash earnings. Salary sacrificing changes the mix, so your index may not reflect your total package.