What a salary sacrifice car means for your pay under awards and the national minimum wage

What is a salary sacrifice car?

A salary sacrifice car is an arrangement where you give up part of your pre-tax salary in exchange for a car or car-related expenses provided by your employer. It is commonly done through a novated lease, where the employer pays for the car lease, fuel, maintenance, and insurance from your pre-tax salary. The benefit is that your taxable income is reduced, so you pay less income tax. However, the employer may have to pay fringe benefits tax (FBT) on the car, which can be passed on to you as a lower salary package.

How salary sacrifice car interacts with awards and the national minimum wage

Under Australian law, your cash wage after salary sacrifice must not fall below the minimum rate set by the relevant modern award or the national minimum wage, whichever is higher. This is a key protection for employees. The national minimum wage from 1 July 2026 is $26.44 per hour, $1004.90 per week, annualised $52,255 (index 48.2). Most modern awards pay more than this. For example, the Retail Trade award has an index of 75.9, meaning the average full-time adult ordinary-time earnings in retail are about 75.9% of the national line ($108,352 annualised). But individual award classifications can be higher or lower.

If you are covered by an award, your employer must ensure that the salary sacrifice does not reduce your hourly cash rate below the award minimum. For instance, if your award rate is $30 per hour and you sacrifice $5 per hour for a car, your cash wage must still be at least $30 per hour. The sacrifice effectively reduces your gross salary but not your cash wage below the legal floor. This is a common area of confusion: salary sacrifice reduces your taxable income, not your minimum entitlement.

Example: Award employee on a salary sacrifice car

Consider an employee in the Accommodation and Food Services industry (index 72.5, well below the national line). The relevant award might set a minimum hourly rate of $27.50. If the employee earns $30 per hour and sacrifices $3 per hour for a car, their cash wage becomes $27 per hour, which is below the award minimum. This would be unlawful. The employer must adjust the sacrifice amount or increase the gross salary so that the cash wage remains at or above $27.50.

Impact on superannuation and tax

Superannuation guarantee contributions (12% from 1 July 2026) are calculated on your ordinary time earnings. After salary sacrifice, your ordinary time earnings may be lower, so your employer's super contributions will be based on the reduced amount. This can reduce your retirement savings. Some employees negotiate for the employer to calculate super on the pre-sacrifice salary, but this is not mandatory.

Tax-wise, salary sacrifice reduces your taxable income, which can lower your marginal tax rate. For the 2026–27 year, resident tax rates are: nil up to $18,200; 15% from $18,201 to $45,000; 30% from $45,001 to $135,000; 37% from $135,001 to $190,000; 45% above $190,000. Plus a 2% Medicare levy. If you are in the 30% bracket, sacrificing $10,000 for a car saves you $3,000 in tax (plus Medicare), but you also lose that $10,000 from your cash flow. The FBT liability (typically 47% for cars) may reduce the net benefit, and employers often pass this cost on.

Salary sacrifice car and the Salary Index

The Salary Index measures full-time adult ordinary-time earnings against a national line of 100 ($108,352 annualised). A salary sacrifice car does not have its own index figure because it is an arrangement, not a pay rate. However, your underlying wage (before sacrifice) can be compared to the index. For example, if your gross salary is $80,000, your index is about 73.8. After sacrificing $10,000 for a car, your taxable income is $70,000, but your cash wage (for minimum wage purposes) is still $80,000. The index is based on gross earnings, not after sacrifice.

Practical considerations

• Award coverage: Check your award or enterprise agreement. Some awards have specific rules about salary sacrifice. For instance, the pay guides on this site summarise award rates.
• State differences: Your state's index may affect typical earnings, but salary sacrifice rules are federal. See states for local benchmarks.
• Industry norms: In industries like Mining (index 154.7), salary sacrifice cars are more common because wages are higher. In Retail (index 75.9), lower wages make it less viable.
• Compliance: The Fair Work Ombudsman and ATO provide guidance. Always get a written agreement detailing the sacrifice and its effect on your entitlements.

Is a salary sacrifice car right for you?

It depends on your income, tax bracket, and award coverage. If you earn well above the award minimum and are in a high tax bracket, the tax savings can be significant. But if you are near the minimum wage, the arrangement may not be legal or worthwhile. Always compare the net benefit after considering FBT, reduced super, and the cost of the car. For more details, see how the index works and topics on salary packaging.

Key takeaways

• Salary sacrifice car reduces taxable income but must not breach award or minimum wage.
• Super contributions may decrease if based on post-sacrifice earnings.
• The arrangement is most beneficial for higher-income earners.
• Always check your award and get professional advice.