Salary Sacrifice Living Expenses: How It Affects Your Position on the Salary Index

What is salary sacrifice living expenses?

Salary sacrifice living expenses is a workplace arrangement where you agree to reduce your cash salary in exchange for your employer paying some of your everyday living costs. These can include rent, mortgage repayments, electricity bills, or even groceries in some cases. The amount you sacrifice comes out of your pre-tax salary, so your taxable income goes down. You still receive the benefit of the paid expense, but you pay less income tax and Medicare levy.

This type of salary sacrifice is not as common as sacrificing into super or a car, but it does exist in certain industries. For example, mining companies often offer remote-area housing as a salary sacrifice benefit. Some not-for-profit employers also allow salary packaging for living expenses up to a capped amount. The rules depend on your employer, your award or enterprise agreement, and tax laws set by the ATO.

How salary sacrifice changes your cash earnings

When you salary sacrifice for living expenses, your employer pays the expense directly. Your payslip will show a lower gross cash amount than your total remuneration package. For instance, if your total package is $120,000 a year and you sacrifice $20,000 for rent, your cash earnings are $100,000. That $100,000 is what the Australian Bureau of Statistics would record as your gross ordinary-time earnings – and it is the figure used to calculate your Salary Index.

The national line for the index is $108,352 a year (based on ABS Average Weekly Earnings, May 2026). If your cash earnings are $100,000, your index is about 92 – below the national average. If you did not sacrifice, your cash earnings would be $120,000 and your index would be about 111, above the line. So salary sacrifice living expenses pushes your index down, even though your total remuneration is higher.

What the salary index measures

The salary index is a simple benchmark: your yearly gross cash earnings divided by the national line, times 100. It tells you where your pay sits compared to the full-time adult ordinary-time earnings figure. An index of 100 means you earn exactly the national average. Above 100 means above average; below means below average. The index does not include the value of salary sacrifice benefits, only the cash you receive. That is why it is important to understand your index in the context of your total package.

If you want to compare your total remuneration (cash plus benefits) to the national line, you would need to add the value of the sacrificed benefit to your cash earnings. But the official index published by Salary Index uses cash earnings only, consistent with how the ABS measures average weekly earnings.

Tax and super considerations

Salary sacrifice living expenses reduces your taxable income, so you pay less income tax. For the 2026–27 financial year, the 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; and 45% above $190,000. Plus a 2% Medicare levy. By lowering your taxable income, you may drop into a lower tax bracket or reduce the amount taxed at higher rates.

Super guarantee is calculated on your ordinary time earnings, which generally includes the amount you salary sacrifice. So your employer still pays 12% super on the full $120,000 package, not just the $100,000 cash. That is a key advantage – your super balance is not reduced by the sacrifice.

However, salary sacrifice does not affect your how the index works because the index is based on gross cash earnings before tax. The index is a pre-tax, pre-sacrifice benchmark. Your take-home pay will be different due to tax savings, but the index itself is unchanged by tax.

Using the index when you salary sacrifice

When you look at your own salary index, use the cash earnings figure from your payslip. That is the number that goes into the index calculation. If you want to know how your total package compares, you can estimate an adjusted index by adding the sacrificed amount back. For example, if your cash earnings are $100,000 and you sacrifice $20,000, your total package is $120,000, giving an adjusted index of about 111. But remember that the official index is always based on cash earnings.

This distinction matters if you are comparing your pay to industry benchmarks. For instance, the index for Professional, scientific and technical services is 114.7, and for Retail trade it is 75.9. If you work in retail and salary sacrifice living expenses, your cash index will be even lower than the industry average. But your total package might be closer to the average if the benefit is valuable.

State differences and salary sacrifice

Your salary index also varies by state. For example, the index for New South Wales is 101.2, for Victoria 98, and for Western Australia 106.9. If you salary sacrifice living expenses, your cash index will be lower than the state average. But the benefit of salary sacrifice may be more valuable in high-cost states like NSW or WA, where living expenses are higher. The states page shows how each state compares to the national line.

Is salary sacrifice living expenses right for you?

It depends on your personal finances. Salary sacrifice reduces your cash flow, which can affect your ability to get a home loan (lenders look at your cash income). It also reduces your taxable income, which saves tax. You need to check if your employer offers this benefit and if your award or agreement allows it. The Fair Work Ombudsman sets minimum pay rates under awards, and salary sacrifice cannot reduce your pay below the award minimum. For example, the national minimum wage from 1 July 2026 is $26.44 per hour, or $1,004.90 per week (index 48.2). Your cash earnings after sacrifice must still meet that floor.

If you are on an award, your ordinary time earnings for super and other entitlements are usually based on the full rate before sacrifice. Always get advice from a qualified accountant or tax adviser before entering a salary sacrifice arrangement.

Final thoughts

Salary sacrifice living expenses is a legitimate way to reduce your tax and manage your budget, but it lowers your cash earnings and therefore your salary index. Understanding where you sit on the index helps you see how your pay compares to the national average. Use the Salary Index to calculate your own index, and remember to use your cash earnings – not your total package – for the most accurate comparison. For more on how pay is measured, see how the index works and explore topics related to salary packaging and tax.