How salary sacrifice childcare fees affect your pay comparison

What does salary sacrifice childcare fees mean?

When you read a job ad that mentions "salary sacrifice childcare fees", it means the employer allows you to pay for childcare from your pre-tax salary. Instead of receiving your full gross pay and then paying childcare costs with after-tax dollars, you agree to a lower gross salary, and your employer uses that reduction to cover your childcare fees. This reduces your taxable income, so you pay less income tax and Medicare levy. The net effect is that you keep more of your earnings, even though your gross pay appears lower.

This benefit is common in the not-for-profit sector, but some corporate employers also offer it. The Australian Tax Office sets limits on how much you can salary sacrifice for childcare without triggering Fringe Benefits Tax, so the exact amount depends on your employer's policy and your personal circumstances.

How salary sacrifice childcare fees fits into the Salary Index

The Salary Index measures gross ordinary-time earnings for full-time adult workers. The national line is 100, which corresponds to $108,352 per year (based on ABS Average Weekly Earnings, May 2026). Your personal index is your annual gross salary divided by that figure, multiplied by 100. For example, a gross salary of $90,000 gives an index of 83.0.

Salary sacrifice for childcare does not change your gross ordinary-time earnings. The employer still reports your gross salary as the amount before sacrifice. So your Salary Index remains the same whether or not you use salary sacrifice. However, the benefit affects your net take-home pay, which is what you actually spend. That is why, when comparing job offers, you need to look beyond the index.

Reading a job ad and comparing offers

Imagine you see two job ads. One offers a gross salary of $95,000 with no salary sacrifice. The other offers $90,000 but includes salary sacrifice for childcare fees of up to $10,000 per year. Which is better?

First, check the index: $95,000 gives an index of 87.7; $90,000 gives 83.0. On gross pay alone, the first job looks stronger. But now factor in the salary sacrifice.

For the second job, if you sacrifice $10,000, your taxable income becomes $80,000. Using the 2026–27 tax rates (nil up to $18,200; 15% on $18,201–$45,000; 30% on $45,001–$135,000; plus 2% Medicare levy), your tax on $80,000 is roughly:

• 0% on first $18,200 = $0
• 15% on $26,800 ($18,201–$45,000) = $4,020
• 30% on $35,000 ($45,001–$80,000) = $10,500
• Medicare levy 2% on $80,000 = $1,600 Total tax and Medicare = $16,120. Net pay = $80,000 – $16,120 = $63,880. But you also receive $10,000 in childcare fees paid by your employer (which you would otherwise have paid from after-tax money). So your effective net income is $63,880 + $10,000 = $73,880.

For the first job at $95,000 (no salary sacrifice), taxable income is $95,000. Tax:

• 0% on $18,200 = $0
• 15% on $26,800 = $4,020
• 30% on $50,000 ($45,001–$95,000) = $15,000
• Medicare levy 2% on $95,000 = $1,900 Total = $20,920. Net pay = $95,000 – $20,920 = $74,080.

In this example, the $95,000 job still gives slightly higher net income ($74,080 vs $73,880), but the difference is small. If you sacrifice more or if the employer calculates super on the original salary, the second job could be better. Always run the numbers for your situation.

State and industry context

The Salary Index by state shows that average earnings vary. For instance, New South Wales has an index of 101.2 ($109,658 annualised), while Tasmania is 88.6 ($96,008). If you are comparing offers in different states, the index helps you see how the base pay stacks up against the local average. Salary sacrifice for childcare does not change that comparison, but it can make a lower-index offer more competitive after tax.

Similarly, industry indices show that Mining sits at 154.7, while Retail trade is 75.9 and Accommodation and food services is 72.5. If you work in a low-index industry, a salary sacrifice benefit can be a valuable way to boost your effective income.

How salary sacrifice interacts with super and awards

Your superannuation guarantee is 12% of your gross salary (from 1 July 2026). If you salary sacrifice, your employer may calculate super on your reduced salary unless your contract says otherwise. That could lower your super contributions over time. Some employers calculate super on the original salary as a benefit – check the job ad or ask during negotiations.

Awards set minimum pay rates. The national minimum wage is $26.44 per hour (index 48.2), and the entry-level award floor is $25.74 per hour. Salary sacrifice cannot reduce your pay below the award minimum. Your gross salary must still meet the award rate. The sacrifice is an agreement to reduce salary above the minimum, not a way to pay less than the legal floor.

Using the Salary Index to compare offers

The how the index works page explains that the index is a benchmark for gross ordinary-time earnings. It does not include overtime, bonuses, or salary sacrifice. When you read a job ad, use the index to see where the base pay sits relative to the national line. Then consider the total remuneration package, including salary sacrifice for childcare, super, leave entitlements, and other benefits.

For example, a job offering $80,000 gross (index 73.8) with salary sacrifice childcare of $8,000 may give a net income equivalent to a job at $88,000 without sacrifice. The index for the $88,000 job is 81.2. So the salary sacrifice effectively lifts your spending power by about 7 index points.

Key takeaways

• Salary sacrifice childcare fees reduce your taxable income and increase net pay, but do not change your gross Salary Index.
• When comparing job offers, calculate net income after tax and the value of the childcare benefit.
• Check superannuation treatment and award compliance.
• Use the Salary Index to compare base pay across jobs, industries, and states, but remember it is only part of the picture.
• Always read the fine print: some employers cap the amount you can sacrifice, and FBT rules may apply.

For more on how to evaluate job offers, see our pay guides and topics on salary negotiation and benefits.