How salary packaging services affect your gross pay, super, and tax

What are salary packaging services?

Salary packaging services let you swap part of your gross salary for benefits like a car, laptop, or super contributions. Instead of receiving all your pay as cash, you choose non-cash items, and your employer pays for them from your pre-tax salary. This reduces your taxable income, so you pay less tax. But it does not change the ordinary-time earnings benchmark used by the Salary Index – that index is based on gross cash earnings before any packaging.

How salary packaging interacts with gross pay

Your gross pay is the total cash salary you earn before tax and before any salary sacrifice. When you package a benefit, your employer reduces your cash pay by the cost of the benefit. For example, if your annual salary is $80,000 and you package a $10,000 car lease, your cash pay becomes $70,000. Your gross pay for index purposes is still $80,000 – the index uses the cash figure that would have been paid without packaging. So salary packaging does not move your index number.

Example: Teacher in NSW

A teacher in New South Wales earns $95,000 per year. The NSW state index is 101.2 (annualised $109,658). The teacher’s gross cash pay of $95,000 gives an index of about 87.7 (95,000 / 108,352 × 100). If they package a $15,000 novated lease, their taxable income drops to $80,000. Their index remains 87.7 because the index is based on the original $95,000 ordinary-time earnings. The benefit reduces their tax but not their index standing.

Superannuation and salary packaging

Super guarantee contributions are calculated on your ordinary time earnings. The ATO defines ordinary time earnings as the amount you earn for your ordinary hours, including salary sacrificed amounts. So even if you package a benefit, your employer must still pay 12% super (from 1 July 2026) on your original gross salary. For the teacher above, super is 12% of $95,000 = $11,400, not 12% of $80,000. Salary packaging does not reduce your super guarantee.

You can also salary sacrifice additional super contributions. Those count towards your concessional cap ($30,000 per year from 2026–27). They reduce your taxable income further but are still included in ordinary time earnings for super guarantee purposes.

Tax implications of salary packaging

Salary packaging reduces your taxable income, so you pay less income tax and Medicare levy. The tax saving depends on your marginal rate. For 2026–27:

• Nil tax on first $18,200
• 15% on $18,201–$45,000
• 30% on $45,001–$135,000
• 37% on $135,001–$190,000
• 45% above $190,000 Plus 2% Medicare levy.

If you are in the 30% bracket, packaging $10,000 saves $3,000 in tax plus $200 Medicare levy. But some benefits attract fringe benefits tax (FBT), which your employer may pass on. Not-for-profit employers often have FBT exemptions for certain benefits (e.g., public hospitals, charities). For-profit employers generally pay FBT on most benefits, reducing the advantage.

Example: Nurse in Queensland

A nurse in Queensland earns $75,000. Queensland’s industry index for health care is 97.8 (annualised $106,064). The nurse’s gross cash pay gives an index of 69.2 (75,000 / 108,352 × 100). They package a $9,000 car through a salary packaging service. Taxable income falls to $66,000. Tax saved: 30% of $9,000 = $2,700 plus Medicare $180. But if the employer is a public hospital (FBT-exempt), no FBT. If a private hospital, FBT may apply. The nurse’s index stays at 69.2.

Salary packaging services and the national line

The national line (index 100) is $108,352 per year. Most salary packaging is used by employees earning above the tax-free threshold. For those on the national minimum wage ($52,255, index 48.2), packaging offers little benefit because their marginal rate is only 15% or nil. Higher earners benefit more.

Salary packaging services are offered by many employers, especially in health care, education, and government. They are administered by third-party providers. The services do not change your index position, but they can improve your overall compensation package.

Links to more information

• How the index works – understand the benchmark.
• Topics – explore other salary topics.
• States – see how your state compares.

Key takeaways

• Salary packaging reduces taxable income but not your ordinary-time earnings index.
• Super guarantee is still calculated on your pre-packaging gross pay.
• Tax savings depend on your marginal rate and FBT rules.
• Use salary packaging services to optimise your take-home pay, but remember the index is a cash benchmark.