What Does Salary Sacrifice Mean? How It Works With Awards and the National Minimum Wage

What Does Salary Sacrifice Mean?

Salary sacrifice is an arrangement between you and your employer where you agree to give up part of your pre-tax salary in exchange for benefits of a similar value. Common benefits include extra superannuation contributions, a car (via a novated lease), or electronic devices. The sacrificed amount is deducted from your gross pay before tax is calculated, which can lower your taxable income and reduce the tax you pay.

In Australia, salary sacrifice is regulated by the Australian Tax Office (ATO) and must comply with the Fair Work Act. It is not a way to bypass award rates or the national minimum wage. Your cash pay after the sacrifice must still meet the legal minimum.

Awards vs the National Minimum Wage

The national minimum wage is the base rate set by the Fair Work Commission. From 1 July 2026, it is $26.44 per hour, or $1,004.90 per week. That works out to an annualised salary of $52,255, which sits at index 48.2 on the Salary Index. In contrast, modern awards set higher minimum rates for specific industries and roles. For example, the Retail Trade industry index is 75.9, meaning the typical full-time adult in retail earns about 75.9% of the national line ($108,352 annualised). Many awards pay above the national minimum wage.

Salary sacrifice does not change your award rate or your classification under an award. If you are covered by an award, your employer must pay you at least the award rate in cash. You can then choose to salary sacrifice a portion of that cash wage into benefits, but the cash component must never fall below the award minimum.

How Salary Sacrifice Affects Your Pay and Tax

Let’s say you earn $80,000 a year under a professional, scientific and technical award (industry index 114.7). You agree to salary sacrifice $10,000 into super. Your taxable income becomes $70,000. You still pay income tax on $70,000, and your employer pays the 12% super guarantee on your original $80,000 ordinary-time earnings (that’s $9,600). The sacrificed $10,000 is treated as an employer contribution, so total super that year could be $19,600. Your take-home cash is based on $70,000, but your gross ordinary-time earnings for the salary index remain $80,000.

Because salary sacrifice reduces your taxable income, you may drop into a lower tax bracket. For 2026–27, 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 sacrificing, you might save the difference between your marginal rate and the 15% tax on super contributions (if sacrificed into super).

Salary Sacrifice and the National Minimum Wage Floor

You cannot salary sacrifice below the national minimum wage. For example, if you are on the national minimum wage of $26.44 per hour, you cannot sacrifice any of that cash because you would then receive less than the legal minimum. Salary sacrifice only works when your base pay is above the minimum. That is why it is more common for employees on higher award rates or above-award salaries.

For junior employees, the junior national minimum wage percentages apply. A 19-year-old, for instance, earns $21.81 per hour (from 1 July 2026). That is already below the adult minimum, so salary sacrifice would not be possible unless the junior rate is higher under a specific award.

State and Industry Differences

Your location and industry affect typical pay levels, which in turn influence how much room you have for salary sacrifice. For example, the states with higher average earnings—like the ACT (index 109.9) and WA (index 106.9)—often have more employees above the minimum, making salary sacrifice more feasible. In contrast, Tasmania (index 88.6) has lower average earnings, so fewer workers may have the headroom.

Similarly, industries with high indices, such as Mining (154.7), often have generous salary sacrifice options. Lower-paid industries like Accommodation and Food Services (72.5) may have many employees near the award floor, limiting sacrifice opportunities.

Salary Sacrifice and Super Guarantee

A common use of salary sacrifice is to boost super. From 1 July 2026, the super guarantee is 12% on ordinary-time earnings, up to a maximum contribution base of $270,830. If you salary sacrifice into super, those contributions count toward the $30,000 concessional cap (for 2026–27). Any excess is taxed at your marginal rate. Your employer still must pay the 12% on your ordinary-time earnings, not the reduced cash salary. So salary sacrifice into super can be a tax-effective way to save for retirement, but it does not reduce your employer’s super obligation.

Key Points to Remember

• Salary sacrifice is a pre-tax arrangement, not a pay cut below minimums.
• Your award rate or the national minimum wage sets the floor for cash pay.
• The Salary Index measures gross ordinary-time earnings before any sacrifice.
• Always check with your employer or a tax professional before starting a salary sacrifice agreement.
• Salary sacrifice can affect your entitlement to certain government benefits, because those are often based on your reduced taxable income.

For more detail on how pay compares across Australia, see our pay guides and topics pages.