Salary Packaging Meaning: How It Affects Your Pay and the Salary Index

What is salary packaging?

Salary packaging, also known as salary sacrifice, is an arrangement where you agree to forgo part of your pre-tax salary in exchange for benefits such as a car, additional superannuation, or electronic devices. The idea is to reduce your taxable income, which can lower the tax you pay and increase your take-home pay, even though your gross cash salary decreases. It's common in sectors like health care, education, and not-for-profit organisations.

How does salary packaging relate to the salary index?

The Salary Index measures gross ordinary-time earnings – the cash salary you receive before tax and before any salary sacrifice. So if you package $10,000 of your salary into a car, your gross cash earnings reported to the ABS would be $10,000 less, and your index position would drop accordingly. However, your total remuneration (cash plus benefits) might be higher than the index suggests. The index is a benchmark for cash earnings, not total package value.

For example, a registered nurse in NSW earning a cash salary of $85,000 might have a salary index of around 78 (85,000 / 108,352 * 100). But if they salary package $15,000 in super and a car, their total package is $100,000, which would give an index of 92. The industries page shows health care and social assistance at index 97.8, so the cash-only index is well below the industry average, but the packaged total is closer.

Salary packaging and tax

Salary packaging reduces your taxable income, which can move you into a lower tax bracket. For the 2026–27 financial year, resident tax rates start at nil for income up to $18,200, then 15% up to $45,000, 30% up to $135,000, 37% up to $190,000, and 45% above that. Plus a 2% Medicare levy. By packaging part of your salary, you may reduce your tax bill. However, some benefits like cars are subject to Fringe Benefits Tax (FBT), which your employer may pass on. Not-for-profit organisations often have FBT exemptions, making packaging more attractive.

Examples across industries

• Retail trade (index 75.9): A retail assistant on the award minimum of $25.74/hr (entry-level) earns about $52,255 annually if full-time. That's index 48.2. Salary packaging is less common in retail, but if available, it could boost total value.
• Mining (index 154.7): A miner on $120,000 cash has index 111. Packaging additional super could push total remuneration higher, but the cash index already exceeds the national line.
• Education and training (index 105.5): A teacher on $95,000 cash has index 87.7, below the industry average. Packaging a laptop or car may bring total value closer to the index.

State differences

The states page shows variations: ACT index 109.9, WA 106.9, NSW 101.2, VIC 98, etc. Salary packaging can help employees in lower-index states improve their total remuneration, but the cash index remains based on cash earnings.

How the index is calculated

The how the index works page explains: your yearly gross cash salary divided by the national line ($108,352) times 100. So if you earn $60,000 cash, your index is 55.4. Salary packaging doesn't change that calculation because it's based on cash earnings before sacrifice. But when comparing your total package to the index, you can adjust the numerator to include the value of benefits.

Caveats

Salary packaging is subject to rules from the ATO and your award or enterprise agreement. Not all employers offer it, and some benefits have caps. The salary index is a gross cash benchmark; it does not reflect the value of packaged benefits. Always check your total remuneration package when assessing where you sit against the national line. For more on how pay is structured in your industry, see the pay guides section.