What salary continuance means for your gross pay, super, and tax
Salary continuance insurance replaces a portion of your income if you can't work. Learn how it's taxed, how super is treated, and where it sits on the Salary Index.
Salary continuance payments are typically 75% of pre-disability salary and are treated as ordinary income. The index figure depends on the replacement rate and your base salary.
What is salary continuance?
Salary continuance is an insurance policy that replaces a portion of your income if you cannot work due to illness or injury. It is also called income protection insurance. Payments are typically a fixed percentage of your pre-disability salary – commonly 75% – and continue until you return to work, the policy ends, or you reach a specified age. In Australia, salary continuance is often offered through superannuation funds, but can also be purchased separately or provided by an employer.
How salary continuance affects your gross pay
Because salary continuance replaces a percentage of your salary, the amount you receive is not a wage but an insurance benefit. The Salary Index compares your annual gross pay against the national line of $108,352 (full-time adult ordinary-time earnings, May 2026). For example, if your base salary is $120,000 and you have a 75% salary continuance policy, your annual benefit is $90,000 – an index of 83.1. This is well above the national minimum wage ($52,255, index 48.2) and the all-employees median ($74,672, index 68.9).
Examples across different earnings levels
- **Professional earning $150,000 with 75% salary continuance: $112,500 annual benefit, index 103.4.
- **Retail worker earning $80,000 with 75% salary continuance $60,000 annual benefit index 55.4.
- **Award employee on the minimum wage $52,255 with 75% salary continuance $39,191 annual benefit index 36.2.
Note that the index figures are gross ordinary-time benchmarks, not a quote for a person or job offer. Modern awards can pay more than the national minimum wage. Take-home figures are a resident estimate with the tax-free threshold and flat 2% Medicare levy. They ignore HELP, salary sacrifice, the Medicare levy reduction, and the Medicare levy surcharge.
Tax treatment of salary continuance
Salary continuance payments are ordinary income. You pay marginal tax rates plus 2% Medicare levy. For 2026–27 excluding Medicare: nil to $18,200; 15% to $45,000; 30% to $135,000; 15% to $190,000; 45% above. Medicare levy 2%. The insurance premium you pay personally not tax-deductible if paid personally, but employer-paid premiums may be a fringe benefit. If the policy is held inside super, the insurance premium deducted from your super balance reduces retirement savings. Some policies include a 'super continuation' benefit that continues contributions while on claim. The 12% super guarantee from 1 July 2026 applies to wages, not insurance benefits.
Super and salary continuance
If your salary continuance is held within your super fund, the insurance premium is deducted from your super balance, which can reduce your retirement savings. Some policies include a 'super continuation' benefit that continues contributions while you are on claim. If the policy is outside super, you may need to arrange contributions from the benefit payment. The 12% super guarantee from 1 July 2026 applies to wages, not insurance benefits.
How salary continuance compares to other income types
Unlike wages, salary continuance is not subject to award rates or the national minimum wage. The Fair Work Commission's Modern Awards Pay Database does not cover salary continuance as it is not an award entitlement. The Department of Social Services guidelines distinguish between salary continuance treated as compensation or ordinary income depending on who made contributions and whether an offset clause exists. For social security purposes, payments may be assessed as compensation if employer-paid, or ordinary income if employee contributions and no offset.
Where to find more information
For more on how your pay compares, see Salary Index. For state and industry benchmarks, visit states and industries. For other pay topics, browse topics. This guide is for general information only and does not constitute financial or tax advice.
Questions people ask
Is salary continuance taxed as ordinary income?
Yes, salary continuance payments are treated as ordinary income for tax purposes. They are assessable and subject to marginal tax rates, plus the 2% Medicare levy. If paid by an insurer, PAYG withholding typically applies. The premiums you pay (if any) are not tax-deductible if paid personally, but employer-paid premiums may be a fringe benefit.
Does salary continuance affect super contributions?
It depends on the policy. If the salary continuance is held within your super fund, the insurance premium is deducted from your super balance, which can reduce your retirement savings. Some policies include a 'super continuation' benefit that continues contributions while you are on claim. If the policy is outside super, you may need to arrange contributions from the benefit payment. The 12% super guarantee from 1 July 2026 applies to wages, not insurance benefits.
How does salary continuance compare to the Salary Index?
The Salary Index measures gross yearly pay relative to full-time adult ordinary-time earnings ($108,352 annualised). Salary continuance replaces a percentage of your pre-disability salary – often 75%. For example, a $100,000 salary yields a $75,000 benefit (index 69.2). This is above the national minimum wage index (48.2) but below the all-employees median ($74,672 annualised, index 68.9). The benefit is not a wage but an insurance payment.