How salary sacrifice works for government employees in Australia

How salary sacrifice affects your pay as a government employee

Salary sacrifice is a common way for government employees to reduce their taxable income by swapping part of their salary for benefits like extra superannuation, a car, or other work-related items. Because the arrangement is pre-tax, it can lower the amount of income tax and Medicare levy you pay each year. But it also changes how your gross pay, super, and tax interact.

What is salary sacrifice?

When you salary sacrifice, you agree with your employer to forgo a portion of your before-tax salary in exchange for a benefit of similar value. The benefit is then provided by your employer, and the sacrificed amount is not included in your assessable income. For government employees, common benefits include:

• Additional superannuation contributions (above the super guarantee)
• Novated car leases
• Electronic devices (laptops, tablets)
• Childcare fees (in some cases)

Because the arrangement is pre-tax, it reduces your taxable income. For example, if you earn $100,000 per year and salary sacrifice $10,000 into super, your taxable income becomes $90,000. You still receive the $10,000 as a super contribution, but it is taxed at a concessional rate within the annual cap.

How salary sacrifice interacts with the salary index

The Salary Index measures full-time adult ordinary-time earnings. The national line is 100, which equals $108,352 per year (based on ABS Average Weekly Earnings, May 2026). This figure is your gross pay before any salary sacrifice deductions. So even if you salary sacrifice, your index figure remains the same as your role's gross ordinary-time earnings. For instance, a government employee earning $108,352 gross would have an index of 100, regardless of how much they sacrifice.

However, salary sacrifice does affect your take-home pay and super. The index is a benchmark for gross pay, not a measure of disposable income. To understand where your gross pay sits, see how the index works.

Super and salary sacrifice

From 1 July 2026, the super guarantee is 12% of your ordinary-time earnings. If you salary sacrifice part of your salary, your employer may calculate the guarantee on the reduced ordinary-time earnings, unless your award or enterprise agreement specifies otherwise. This is an important detail: salary sacrifice can lower the base on which your compulsory super is calculated.

For example, if your gross salary is $100,000 and you sacrifice $10,000, your employer might pay the 12% guarantee on $90,000 ($10,800) instead of $100,000 ($12,000). You would then receive the sacrificed $10,000 as an additional super contribution, so total super could be $20,800. But the compulsory component is lower. Always check your employment contract.

Tax implications

Salary sacrifice reduces your taxable income, which can lower your marginal tax rate. For 2026–27, resident tax rates (excluding Medicare) 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. By sacrificing, you may drop into a lower bracket, saving tax. However, the sacrificed amount is still subject to tax in the hands of the super fund (for super contributions) or as fringe benefits tax (for other benefits). The ATO sets annual caps on concessional super contributions; amounts above the cap are taxed at your marginal rate.

Examples for government employees

Consider a government employee in New South Wales (state index 101.2, annualised $109,658). If they earn $109,658 gross and salary sacrifice $15,000 into super, their taxable income falls to $94,658. Their marginal rate drops from 30% to 30% (still within the 30% bracket), but they save $4,500 in tax (30% of $15,000) plus Medicare levy savings. Their take-home pay (before sacrifice) would be lower by $15,000, but they gain $15,000 in super.

If the same employee were in Western Australia (state index 106.9, $115,825), sacrificing $15,000 would reduce taxable income to $100,825, still in the 30% bracket. The tax saving is similar.

What about awards and agreements?

Government employees are often covered by enterprise agreements or modern awards. These may set minimum pay rates and conditions for salary sacrifice. For example, the national minimum wage from 1 July 2026 is $26.44 per hour ($1,004.90 per week, index 48.2). Award minima rose 4.75% from that date. Salary sacrifice cannot reduce your pay below the applicable award or minimum wage. Always check your specific award or agreement.

State and industry variations

The salary index varies by state and industry. For instance, the ACT has the highest state index at 109.9 ($119,090), while Tasmania is lowest at 88.6 ($96,008). Government employees in the ACT may have higher gross pay, but salary sacrifice works the same way. Industry-wise, the industries page shows that Education and training has an index of 105.5, and Health care and social assistance is 97.8. Many government employees work in these sectors.

Key takeaways

• Salary sacrifice reduces taxable income but does not change your gross ordinary-time earnings or salary index.
• It can lower your compulsory super guarantee if your employer calculates it on the reduced salary.
• Tax savings depend on your marginal rate and the type of benefit.
• Always review your employer's policy and any applicable award or agreement.

For more on how pay compares across Australia, see the states page or browse pay guides for general salary information.