How to salary sacrifice super: what it means for your pay and the salary index

How to salary sacrifice super: a practical guide for Australian workers

Salary sacrifice super is a way to boost your retirement savings while reducing your tax bill. It works by you agreeing with your employer to take a lower pre-tax salary in exchange for them making additional contributions to your super fund. The sacrificed amount is not counted as part of your assessable income, so you pay less income tax and Medicare levy. This guide explains how to set it up, what it means for your pay, and where your earnings sit on the Salary Index.

What is salary sacrifice super?

Salary sacrifice super is an arrangement under which you give up part of your gross salary or wages, and your employer pays that amount into your super fund as an employer contribution. It is different from the super guarantee, which your employer must pay on top of your salary. With salary sacrifice, you are choosing to receive less cash now in return for more super later.

The key benefit is tax savings. The sacrificed amount is taxed in your super fund at 15% (if it stays within the concessional contributions cap of $27,500 for 2026–27), rather than at your marginal tax rate, which could be 30%, 37%, or 45% plus 2% Medicare levy. For example, if you are in the 37% tax bracket, sacrificing $10,000 saves you $3,700 in income tax plus $200 Medicare levy – a total of $3,900. The $10,000 goes into super and is taxed at 15% ($1,500), so you still come out ahead.

How to set up salary sacrifice super

To start salary sacrificing, you need to ask your employer if they offer it. Many employers have a standard policy. You will need to sign a formal agreement that specifies the amount or percentage of your salary to sacrifice, and the start date. The agreement must be in place before the income is earned – you cannot sacrifice income you have already received.

Some things to check:

• Your employer may limit how much you can sacrifice, especially if it would reduce your pay below the award rate or national minimum wage.
• Salary sacrifice contributions count towards your concessional contributions cap. If you exceed $27,500 in total (including your employer's super guarantee), the excess is taxed at your marginal rate plus an excess contributions charge.
• The super guarantee (12% from 1 July 2026) is calculated on your ordinary-time earnings before the sacrifice, so your employer still contributes the full 12% on your original salary. That means your total super contributions (guarantee plus sacrifice) can be quite high.

How salary sacrifice affects your pay and the salary index

The Salary Index measures gross ordinary-time earnings – the full amount you earn before any deductions like tax or salary sacrifice. So if your gross salary is $100,000, your index is about 92.3 (100,000 divided by the national line of $108,352, times 100). Salary sacrifice does not change that figure because the index uses the gross amount before sacrifice.

However, your taxable income and take-home pay are lower. For example, a worker on $120,000 (index 110.8) who sacrifices $15,000 has a taxable income of $105,000. They save $5,550 in tax (37% bracket) plus $300 Medicare levy, so their net pay drops by only $9,150. The $15,000 goes into super, where it grows over time.

Your state also matters for the index, but not for salary sacrifice rules. For instance, the ACT has an index of 109.9 (annualised $119,090), while Tasmania is 88.6 ($96,008). Salary sacrifice is equally available in all states, but your marginal tax rate depends on your total taxable income, not your state.

Tax and super considerations

When you salary sacrifice, the contributions are treated as employer contributions for tax purposes. They are subject to the 15% contributions tax if they are within the concessional cap. If you exceed the cap, the excess is added to your assessable income and taxed at your marginal rate.

You can also use salary sacrifice to make catch-up contributions if your total super balance is below $500,000. The unused concessional cap amounts from previous years (up to five years) can be carried forward.

Remember that salary sacrifice reduces your gross income for some purposes, such as child care subsidy, family tax benefit, or income protection insurance. Check with your provider before locking in a large sacrifice.

Examples of salary sacrifice super in action

Example 1: Mid-range earner

• Gross salary: $85,000 (index 78.4)
• Salary sacrifice: $10,000 per year
• Taxable income: $75,000
• Tax saved: $3,000 (30% bracket) + $200 Medicare levy = $3,200
• Net pay reduction: $6,800
• Super boost: $10,000 plus 12% guarantee on $85,000 ($10,200) = $20,200 total contributions

Example 2: High earner

• Gross salary: $150,000 (index 138.4)
• Salary sacrifice: $20,000 per year
• Taxable income: $130,000
• Tax saved: $7,400 (37% bracket) + $400 Medicare levy = $7,800
• Net pay reduction: $12,200
• Super boost: $20,000 plus 12% guarantee on $150,000 ($18,000) = $38,000 total contributions

Where to get more information

For detailed pay rates and award conditions, see the pay guides on this site. You can also compare your earnings by state or industry. The topics page covers other ways to optimise your pay, including salary packaging and fringe benefits.

Frequently asked questions about salary sacrifice super

What is salary sacrifice super and how does it work? Salary sacrifice super is an agreement between you and your employer to reduce your pre-tax salary by a set amount, with that amount paid into your super fund as an employer contribution. It lowers your taxable income, so you pay less income tax and Medicare levy. The sacrificed amount is taxed in the super fund at 15% (if within the concessional cap), which is usually lower than your marginal tax rate. You must have a valid salary sacrifice arrangement in place before the income is earned.

Does salary sacrifice super affect my take-home pay? Yes, salary sacrifice reduces your take-home pay because you are forgoing part of your salary. However, the tax savings can make it worthwhile. For example, if you earn $100,000 and sacrifice $10,000, your taxable income drops to $90,000. You save $3,000 in tax (30% bracket) plus $200 Medicare levy, so your net pay decreases by only $6,800 instead of $10,000. The $10,000 goes into super, where it grows for retirement.

How does salary sacrifice super relate to the salary index? The salary index (how the index works) is based on gross ordinary-time earnings before any salary sacrifice. So if your gross salary is $100,000, your index is about 92.3 (100,000 / 108,352 × 100). Salary sacrifice does not change that figure because the index uses the full salary before sacrifice. However, your taxable income and take-home pay are lower, which is why salary sacrifice is a popular strategy for high earners to reduce tax while boosting super.