How to Set Up Salary Sacrifice: Awards vs National Minimum Wage Rules

How to Set Up Salary Sacrifice: Awards vs National Minimum Wage

Salary sacrifice is an arrangement where you give up part of your pre-tax salary in exchange for a benefit of equal value, such as extra super contributions, a car, or electronic devices. It can reduce your taxable income, but it must be set up correctly to avoid breaching workplace laws. In Australia, the key rule is that your base salary after sacrifice cannot fall below the national minimum wage or the minimum rate in your award, whichever is higher. This guide explains how to set up salary sacrifice while staying compliant with awards and the national minimum wage.

What Is Salary Sacrifice?

Salary sacrifice (also called salary packaging) is a voluntary agreement between you and your employer. You forgo a portion of your gross salary, and your employer provides a non-cash benefit instead. The most common example is sacrificing into superannuation. Because the sacrificed amount is taken from your pre-tax pay, you pay less income tax. However, the benefit is still subject to fringe benefits tax in some cases, and there are caps and conditions.

How Awards and the National Minimum Wage Affect Salary Sacrifice

The national minimum wage from 1 July 2026 is $26.44 per hour, or $1,004.90 per week, annualised to $52,255. That gives a Salary Index of 48.2, meaning it is about half the full-time adult ordinary-time earnings benchmark of $108,352. But most employees are covered by a modern award, which sets a higher minimum wage for their industry or role. For example, the Retail trade industry has an index of 75.9, while Accommodation and food services sits at 72.5. Award minima rose by 4.75% from 1 July 2026, so the floor is often well above the national minimum.

When you set up salary sacrifice, your employer must ensure that your remaining cash salary is at least equal to the minimum rate under the relevant award or the national minimum wage. If you are on an award that says you must be paid $30 per hour, you cannot sacrifice enough to drop your cash pay below $30 per hour. This rule protects you from being paid below the legal minimum.

Steps to Set Up Salary Sacrifice

1. Check your award or agreement. Find out the minimum hourly or annual rate for your classification. You can look up your award on the Fair Work Ombudsman website or check your enterprise agreement. Your base pay after sacrifice must stay above that rate.
2. Choose the benefit. Decide what you want to sacrifice for – extra super, a car, laptops, or other items. Super is the most common and has tax advantages because contributions are taxed at 15% instead of your marginal rate.
3. Get a written agreement. Your employer must provide a formal salary sacrifice agreement. It should state the amount sacrificed, the benefit provided, and the period. The agreement cannot be retrospective.
4. Confirm the impact on your take-home pay. Use the tax brackets for 2026–27: nil tax up to $18,200, then 15% up to $45,000, 30% up to $135,000, 37% up to $190,000, and 45% above that. Add the 2% Medicare levy. Salary sacrifice reduces your taxable income, so you may drop into a lower bracket.
5. Monitor your super cap. If you sacrifice into super, the total concessional contributions (including your employer’s 12% super guarantee and any salary sacrifice) cannot exceed $27,500 per year. Going over incurs extra tax.

Tax and Super Considerations

Salary sacrifice can save you tax on the sacrificed amount. For example, if you earn $90,000 and sacrifice $10,000 into super, your taxable income becomes $80,000. You pay tax on $80,000 instead of $90,000. The super fund pays 15% on the $10,000. But remember: your employer still pays 12% super guarantee on your ordinary time earnings including the $10,000 sacrificed. So you get the benefit of the contribution, and your super balance grows.

Also, salary sacrifice for a car or other benefits may attract fringe benefits tax if the car is used for private use. But many benefits are exempt or have exemptions.

Examples Across Australia

In New South Wales, the state index is 101.2, annualised $109,658. If you are on an award that pays $60,000, you can sacrifice $10,000 into super. Your cash pay $50,000, still above the national minimum. But if your award minimum is $55,000, you can sacrifice only up to $5,000. So always check.

In Western Australia, index 106.9, annualised $115,825. The award rate might be $60,000. You can sacrifice $5,000 into super. Cash pay $55,000, above national minimum. But if your award minimum is $55,000, you cannot sacrifice any more.

Internal Resources

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Final Thoughts

Setting up salary sacrifice is straightforward if you know your award rate. Always ensure your base pay stays above the national minimum or award rate. Use the salary sacrifice to reduce tax and boost super. But never sacrifice below the legal minimum. Check with your employer and a tax professional.

Remember: salary sacrifice does not affect your super guarantee, but it counts towards your concessional cap. And your award rate is your floor. Use the Salary Index to see where your pay sits against the national line.