How Salary Sacrifice Companies Affect Your Gross Pay, Super, and Tax

What Is Salary Sacrifice?

Salary sacrifice is an arrangement where you agree to give up part of your pre-tax salary in return for a benefit your employer provides. The most common benefit is extra super contributions, but you can also sacrifice for a car (via novated lease), laptops, or other work-related items. Employers that offer these arrangements are often called salary sacrifice companies. They are widespread in industries like mining, professional services, and the public sector.

When you salary sacrifice, your taxable income drops because the sacrificed amount is not counted as wages for tax purposes. However, your gross ordinary-time earnings – the figure used in the Salary Index – stay the same. The index measures your full-time adult ordinary-time earnings before any deductions or sacrifices. So if you earn the national average of $108,352 a year (index 100), your index remains 100 even if you sacrifice $15,000 into super.

How Salary Sacrifice Affects Your Gross Pay and Tax

Your gross pay on paper doesn't change for the purposes of awards, super guarantee, or the salary index. But your taxable income does. Let's say you earn $108,352 (index 100) and sacrifice $15,000 into super. Your taxable income becomes $93,352. Under the 2026–27 resident tax rates, you pay:

• Nil on the first $18,200
• 15% on the next $26,800 (to $45,000) = $4,020
• 30% on the next $48,352 (to $93,352) = $14,505.60
• Plus 2% Medicare levy on $93,352 = $1,867.04

Total tax and Medicare: $20,392.64. Without salary sacrifice, on $108,352 you'd pay:

• Same nil and 15% bands: $4,020
• 30% on the next $63,352 (to $108,352) = $19,005.60
• Medicare: $2,167.04
• Total: $25,192.64

That's a saving of $4,800. But remember, the $15,000 goes into super and is taxed at 15% inside the fund ($2,250), so your net super boost is $12,750. Overall you're ahead, especially if your marginal rate is higher than 15%.

Salary sacrifice companies often structure these arrangements to maximise tax efficiency. For example, if you're in the 37% bracket (income $135,001 to $190,000), the tax saving on each sacrificed dollar is 39 cents (including Medicare). That makes salary sacrifice very attractive for higher earners.

Salary Sacrifice and Super

Super guarantee (SG) is 12% from 1 July 2026, calculated on your ordinary time earnings. Importantly, salary sacrifice amounts are still part of your ordinary time earnings for SG purposes. So your employer must pay SG on your full pre-sacrifice salary. Using the example above, SG on $108,352 is $13,002.24. Plus your salary sacrifice of $15,000 gives total super contributions of $28,002.24. The $15,000 is a concessional contribution and counts towards the $30,000 annual cap (for 2026–27). If you exceed the cap, excess contributions are taxed at your marginal rate.

Some salary sacrifice companies also allow you to sacrifice into super above the SG, which is a simple way to boost retirement savings while reducing tax. But be careful: if your total concessional contributions (including SG) go over the cap, you'll pay extra tax. The ATO tracks this, so you need to monitor your contributions.

Considerations and Caveats

Salary sacrifice isn't always beneficial. It can reduce your entitlement to some means-tested benefits, like the Family Tax Benefit or childcare subsidy, because those are based on your adjusted taxable income. It may also affect your leave loading or penalty rates if your award calculates them on your reduced salary. Check your award or agreement – the Fair Work Ombudsman provides pay guides that explain how salary sacrifice interacts with minimum rates.

For non-super benefits, like a car, fringe benefits tax (FBT) may apply. The employer pays FBT, but they often pass the cost back to you through a lower salary. That can reduce the net benefit. Salary sacrifice companies typically handle the FBT calculations, but you should compare the after-tax cost.

The Salary Index uses gross ordinary-time earnings, so your index doesn't change when you salary sacrifice. But your take-home pay does. For a resident earning the national average and sacrificing $15,000 into super, your weekly take-home (after tax and Medicare) drops from about $1,597 to $1,415, but you gain $12,750 in super. Over a year, that's a significant retirement boost.

Different states have different average earnings, which affects the tax benefit. For example, in Western Australia (index 106.9, annualised $115,825), a salary sacrifice of $15,000 saves tax at the 30% rate (plus Medicare) – same as the national average. But in Tasmania (index 88.6, $96,008), the marginal rate might be lower, so the saving is smaller. Use the states page to see how your location compares.

Salary sacrifice companies are common in industries with higher pay, like mining (index 154.7) and professional services (index 114.7). In retail (index 75.9) or accommodation (index 72.5), salary sacrifice is less common because wages are lower and the tax benefit is smaller. But even on the national minimum wage ($52,255, index 48.2), salary sacrificing a small amount into super can be worthwhile if you're in the 15% tax bracket – you'd save 17 cents per dollar (15% tax plus 2% Medicare) versus 15% inside super, so a small net benefit.

For more on how salary sacrifice interacts with your overall pay, see our topics page. And remember, the figures here are examples – your actual situation depends on your award, employer policy, and personal circumstances. Always consult a tax professional or your employer's HR team before starting a salary sacrifice arrangement.