How Salary Sacrifice Affects Your Salary Index Position and the Benefits of Salary Sacrifice

Understanding the Salary Index and Salary Sacrifice

The Australian salary index, published by Salary Index, measures where your gross annual ordinary-time earnings sit compared to the national line. The national line is set at 100, which corresponds to full-time adult ordinary-time earnings of $108,352 per year (based on ABS Average Weekly Earnings, May 2026). If you earn more than that, your index is above 100; if less, it is below. For example, the national minimum wage from 1 July 2026 is $52,255 annualised, giving an index of 48.2.

But what happens when you use salary sacrifice? Salary sacrifice is an arrangement where you agree to forgo part of your pre-tax salary in exchange for benefits such as extra super contributions, a car, or other fringe benefits. The key point is that the salary index uses your gross ordinary-time earnings before any salary sacrifice. So if your base salary is $120,000 and you sacrifice $15,000 into super, your index remains 110.7. The sacrifice does not change your index position, but it does change your taxable income and take-home pay.

The Benefits of Salary Sacrifice Explained

The benefits of salary sacrifice are primarily tax-related. By reducing your taxable income, you pay less income tax and Medicare levy. For example, if you earn $120,000 and sacrifice $15,000 into super, your taxable income drops to $105,000. Under the 2026–27 resident tax rates (excluding Medicare), you save tax at your marginal rate—likely 30% or 37%—on the sacrificed amount. The super contributions are then taxed at 15% within the fund, which is usually lower than your marginal rate. This can boost your retirement savings significantly.

Other common benefits include novated leases for cars, where you pay for the car and running costs from pre-tax salary, and salary packaging of items like laptops or childcare. However, some benefits may incur fringe benefits tax (FBT) for your employer, which can reduce the net benefit. It is important to check with your employer whether they offer salary sacrifice and what the rules are.

How Salary Sacrifice Interacts with Awards and Super Guarantee

Your award or enterprise agreement often sets minimum pay rates and conditions. The benefits of salary sacrifice do not usually affect your award entitlements because those are calculated on your ordinary-time earnings before sacrifice. For example, if you work in retail (industry index 75.9) and earn $82,000 gross, your index is 75.7. If you salary sacrifice $10,000 into super, your award leave and penalty rates remain based on $82,000. Similarly, the super guarantee (12% from 1 July 2026) is paid on your ordinary-time earnings, not the sacrificed amount. Your employer must still contribute 12% of $82,000 to your super, even if you also sacrifice additional amounts.

State and Industry Context

Your salary index can vary by state and industry. For instance, the ACT has an index of 109.9 ($119,090 annualised), while Tasmania is 88.6 ($96,008). If you work in mining (index 154.7), your pay is well above the national line. Salary sacrifice can be particularly beneficial for higher earners in high-index states or industries, as the tax savings are larger at higher marginal rates. Conversely, if your index is low (e.g., accommodation and food services at 72.5), salary sacrifice may still help, but the tax benefit is smaller because your marginal rate is lower.

Practical Considerations

Before entering a salary sacrifice arrangement, consider:

• Employer policy: Not all employers offer salary sacrifice. Check with your HR or payroll.
• Fringe benefits tax: Some benefits (e.g., cars) may trigger FBT, which your employer may pass on to you.
• Impact on government benefits: Salary sacrifice reduces your adjusted taxable income, which could affect your eligibility for family tax benefit, child care subsidy, or other means-tested payments.
• Super caps: Additional super contributions via salary sacrifice count towards the concessional contributions cap ($27,500 per year in 2026–27). Exceeding the cap incurs extra tax.

Using the Salary Index to Evaluate Your Pay

To find your own index, divide your gross annual ordinary-time earnings by $108,352 and multiply by 100. For example, if you earn $95,000, your index is 87.7. You can compare this to the national line, your state average (see states), or your industry average (see industries). The index is a benchmark for full-time adult ordinary-time earnings; it does not include overtime, bonuses, or salary sacrifice amounts. For more detail on how the index is calculated, visit how the index works.

Conclusion

The benefits of salary sacrifice are real and can improve your financial position, but they do not change your salary index number. Your index remains based on your gross ordinary-time earnings. Understanding where your pay sits on the index helps you see how you compare nationally, and combining that with smart salary sacrifice can boost your take-home pay and super. Always seek professional advice tailored to your situation, as tax and super rules can be complex. For more guides on pay and awards, check our pay guides and topics.