For an Australian private company, salary packaging (or salary sacrificing) is an agreement where an employee receives less gross salary before tax

For an Australian private company, salary packaging (or salary sacrificing) is an agreement where an employee receives less gross salary before tax, which is then used by the employer to pay for agreed-upon benefits on the employee's behalf, reducing the employee's taxable income and often leading to tax savings. Common examples of these pre-tax benefits include contributions to superannuation, car leases, laptops, and mortgage or rent payments. The availability and type of benefits are determined by the specific employer and can also depend on the employee's industry, notes CPL - Choice, Passion, Life and Salary Packaging Australia. 

How it Works

Agreement: The employee and employer agree to restructure part of the employee's salary into benefits. 

Pre-Tax Deduction: A portion of the employee's gross salary is paid directly to cover these agreed-upon benefits, rather than being paid to the employee as cash. 

Reduced Taxable Income: Because the portion for benefits is deducted before tax is calculated, the employee's taxable income is lower. 

Tax Savings: The employee pays less income tax because their taxable income is reduced. 

Benefits for Employees

Tax Savings: A primary benefit is a reduction in income tax, as certain expenses are paid with pre-tax dollars. 

Increased Take-Home Pay: By reducing taxable income, more money can be left over for personal use, according to Moneysmart.gov.au. 

Access to Other Benefits: Employees can benefit from services or purchases (like a car or laptop) that they might not have been able to afford otherwise. 

Benefits for Employers 

Attract Talent: Offering salary packaging can be a valuable employee benefit that helps attract and retain skilled workers.

Competitive Advantage: It allows a company to offer more attractive remuneration packages compared to competitors.

Employee Satisfaction: It can enhance employee morale and job satisfaction by providing financial flexibility and benefits.

Key Considerations

Employer Discretion: Not all private companies offer salary packaging; the availability and specifics depend on the employer and their policies, notes Salary Packaging Australia. 

Fringe Benefits Tax (FBT): For the employer, there are rules regarding Fringe Benefits Tax (FBT) that must be followed when offering certain pre-tax benefits. 

Arrangement Before Payment: Salary packaging arrangements must be made with the employer before the employee receives their pay.