Salary sacrificing and your pay: how it affects the salary index
Learn how salary sacrificing works in Australia, how it impacts your taxable income, and where your pay sits on the national salary index.
Salary sacrificing does not change the salary index figure because the index uses gross ordinary-time earnings before any sacrifice; the index remains based on your total remuneration package.
What is salary sacrificing?
Salary sacrificing is an arrangement where you agree to give up part of your before-tax salary in exchange for benefits such as additional super contributions, a car, or other non-cash items. The sacrificed amount is deducted from your gross pay before tax is calculated, which lowers your taxable income and can reduce the amount of tax you pay. However, it does not change the gross earnings figure used to calculate your position on the Salary Index.
How salary sacrificing interacts with the salary index
The salary index is based on your full-time adult ordinary-time earnings before any deductions or sacrifices. The Australian Bureau of Statistics collects gross earnings data that includes salary sacrificed amounts as part of total remuneration. So if your total package is $100,000 and you sacrifice $10,000 into super, your gross earnings for index purposes remain $100,000. The index is calculated as your yearly gross divided by the national line ($108,352 as of May 2026) times 100. For a $100,000 package, the index is about 92.3, regardless of how much you sacrifice.
This is important because some people think salary sacrificing makes them appear lower on the index. It does not. The index reflects your total employment value, not just your cash take-home. For more on how the index is calculated, see how the index works.
Examples with index calculations
Consider two full-time workers in the same role with identical total packages of $80,000 per year. Worker A takes all $80,000 as cash. Worker B salary sacrifices $10,000 into super, receiving $70,000 cash plus $10,000 super contributions. Both have a gross ordinary-time earnings figure of $80,000 for index purposes. Their index is (80,000 / 108,352) × 100 ≈ 73.8. That is well below the national line of 100. The difference is in their taxable income: Worker A pays tax on $80,000, while Worker B pays tax on $70,000 (assuming no other adjustments). After tax and Medicare levy, Worker B takes home more cash because of the lower tax bill, but the index remains the same.
If Worker B had a total package of $108,352 and sacrificed $20,000, the index would be exactly 100. The sacrifice does not change that. The index is a measure of your total remuneration, not your cash flow.
Tax and super considerations
Salary sacrificing into super is one of the most common forms. The super guarantee (SG) is 12% from 1 July 2026, and it is calculated on your ordinary-time earnings, which include any salary sacrificed amounts. Your employer must still pay the SG on your full ordinary-time earnings, even if you sacrifice some of that into super. The sacrificed super contributions are in addition to the SG, up to the concessional contributions cap.
For tax purposes, salary sacrificed amounts reduce your taxable income. Using the 2026–27 resident tax rates (excluding Medicare), a person earning $80,000 who sacrifices $10,000 into super would have a taxable income of $70,000. They pay 15% on the first $45,000 and 30% on the next $25,000, plus 2% Medicare levy. Without the sacrifice, they would pay more tax. However, the sacrificed super contributions are taxed at 15% inside the fund, so there is a net tax benefit for most people.
Salary sacrificing for non-super benefits, like a car, may involve fringe benefits tax (FBT). The employer may pass on the FBT cost, which can reduce the benefit. Always check the net effect before agreeing.
Salary sacrificing and awards
Your award or enterprise agreement sets minimum wages and conditions. Salary sacrificing cannot reduce your award entitlements. For example, if your award says you must be paid at least $26.44 per hour (the national minimum wage from 1 July 2026), you cannot sacrifice part of that minimum rate. The sacrifice must come from amounts above the award minimum. The Fair Work Ombudsman provides guidance on this. For more on pay standards, see pay guides.
State and industry variations
The salary index varies by state and industry. For instance, the index for Western Australia is 106.9, while for Tasmania it is 88.6. In mining, the index is 154.7; in retail trade it is 75.9. Salary sacrificing does not change these benchmarks because they are based on gross earnings. However, the prevalence of salary sacrificing may differ by industry. Public sector and large corporate roles often offer salary packaging, while small businesses may not. If you are comparing your pay to state or industry averages, remember that the index already includes any salary sacrificed amounts in the gross figures. See states and industries for more details.
Key takeaways
- Salary sacrificing does not lower your salary index; the index uses total gross earnings before sacrifice.
- It can reduce your taxable income and increase your take-home pay, but the index remains unchanged.
- Always check your award or agreement to ensure salary sacrificing is allowed and does not undercut minimum rates.
- Consider the impact on super guarantee and FBT before entering an arrangement.
For a broader discussion of pay topics, visit topics.
Questions people ask
Does salary sacrificing reduce my salary index?
No. The salary index is calculated using your gross ordinary-time earnings before any salary sacrifice arrangements. Even if you sacrifice part of your salary for super or other benefits, your total remuneration package (including the sacrificed amount) is still counted as earnings for the index. So your index figure stays the same as if you had received the full cash salary.
Can salary sacrificing affect my super guarantee?
Yes, but only if the sacrificed amount is directed into super. The super guarantee (SG) is calculated on your ordinary-time earnings, which generally includes salary sacrificed amounts. However, if you salary sacrifice into super, those contributions are in addition to the SG. Your employer must still pay the 12% SG on your ordinary-time earnings (including the sacrificed amount). Salary sacrificing into super does not reduce the SG your employer is required to pay.
Is salary sacrificing available under all awards?
No. Salary sacrificing is not a right under most awards; it is an arrangement between you and your employer. Some awards or enterprise agreements may allow or restrict salary sacrificing. The Fair Work Ombudsman advises that salary sacrificing must be voluntary and cannot reduce your award entitlements, such as minimum wages or penalty rates. Always check your award or agreement before entering a salary sacrifice arrangement.