What is salary sacrifice? How it works with award rates and the national minimum wage

What is salary sacrifice?

Salary sacrifice is an arrangement where you agree to forgo part of your before-tax salary in exchange for a benefit of the same value provided by your employer. Common benefits include additional superannuation contributions, a car, or electronic devices. The sacrificed amount is not included in your taxable income, which can reduce the tax you pay. However, salary sacrifice does not change the legal minimum pay you must receive under an award or the national minimum wage.

How salary sacrifice relates to award rates and the national minimum wage

Awards set minimum pay rates for specific industries and occupations. The national minimum wage is the legal floor for all employees not covered by an award. As of 1 July 2026, the national minimum wage is $26.44 per hour, or $1004.90 per week, giving a salary index of 48.2. The entry-level award floor is $25.74 per hour, but many awards pay higher rates.

Salary sacrifice cannot reduce your gross ordinary-time earnings below the applicable minimum. For example, if you are on the Retail Award with a base rate of $25.74 per hour, you cannot sacrifice any amount that would bring your hourly pay below that figure. Similarly, a national minimum wage earner at $26.44 per hour cannot sacrifice any part of that wage. Any salary sacrifice must come from earnings above the minimum.

This is a critical distinction: salary sacrifice is a tax strategy, not a way to lower your legal pay. The Fair Work Ombudsman enforces that employees must receive at least their award or minimum wage in cash or equivalent benefits. If your salary sacrifice arrangement reduces your gross pay below the minimum, it is unlawful.

Salary sacrifice and the salary index

The Salary Index measures gross ordinary-time earnings against a national benchmark of 100, which equals $108,352 per year (based on ABS Average Weekly Earnings, May 2026). If you salary sacrifice, your gross earnings for tax purposes are lower, but the index uses the earnings figure before any sacrifice. For instance, if your annual salary is $80,000 and you sacrifice $10,000 into super, your taxable income is $70,000, but your gross ordinary-time earnings for index purposes remain $80,000. Your personal index would be 73.8 ($80,000 / $108,352 × 100).

However, the index is a benchmark, not a personal quote. The figures published on how the index works are based on ABS data, which captures gross earnings before individual salary sacrifice arrangements. So your salary sacrifice does not change the national or industry indices, but it can affect your personal tax position.

Examples of salary sacrifice in practice

Consider an employee on the Professional, Scientific and Technical Services award. The industry index is 114.7, meaning average earnings are about $124,300 per year. If this employee earns $120,000, they could sacrifice up to $15,000 into super (subject to contribution caps) without breaching the award minimum, because the award rate is much lower than their actual pay. The sacrificed amount reduces their taxable income to $105,000, saving them tax at their marginal rate (30% in the 2026–27 tax year for income between $45,001 and $135,000). They also pay the 2% Medicare levy on the reduced income.

Now take a retail worker earning $55,000 per year, which is above the Retail Award minimum of about $50,000. They could sacrifice a small amount, say $5,000, into super. Their taxable income drops to $50,000, reducing tax from the 30% bracket to the 15% bracket for that portion. But they must ensure their gross pay after sacrifice still exceeds the award minimum. Since $55,000 minus $5,000 is $50,000, and the award minimum is lower, this is permissible.

Tax and super considerations

Salary sacrifice for super is the most common form. The super guarantee rate is 12% from 1 July 2026, and your employer must pay this on your ordinary time earnings, which includes the sacrificed amount. So if you sacrifice $10,000, your employer still pays 12% on your full $80,000 salary, meaning total super contributions could be $9,600 (employer) plus $10,000 (sacrifice) = $19,600. The concessional contributions cap for 2026–27 is $30,000 (indexed), so you must stay within that limit.

Tax brackets for 2026–27 (resident, excluding Medicare): 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. The Medicare levy adds 2%. Salary sacrifice reduces your taxable income, potentially lowering your marginal rate.

Award-specific rules

Some modern awards have specific clauses about salary sacrifice. For example, awards may require that salary sacrifice arrangements be in writing and that the employee retains the right to withdraw. Always check your award or enterprise agreement. The pay guides on this site summarise minimum rates for many awards, but they do not cover salary sacrifice rules in detail. For that, consult the Fair Work Ombudsman or your employer.

State and industry context

Salary sacrifice is available in all states and territories. The state indices vary: NSW 101.2, VIC 98, QLD 97.9, SA 94.6, WA 106.9, TAS 88.6, NT 95.2, ACT 109.9. These differences reflect average earnings, not the legality of salary sacrifice. The same rules apply nationwide under federal workplace laws.

Industries with higher indices, such as Mining (154.7) and Professional Services (114.7), often have more scope for salary sacrifice because earnings are well above award minima. In contrast, Retail Trade (75.9) and Accommodation and Food Services (72.5) have lower average earnings, leaving less room for sacrifice above the award floor.

Key takeaways

• Salary sacrifice reduces taxable income but cannot breach award or minimum wage floors.
• It is most beneficial when your earnings are above the minimum and you want to boost super or reduce tax.
• The Salary Index measures gross earnings before sacrifice, so your personal index may differ from your taxable income.
• Always ensure your arrangement complies with your award and the ATO’s rules.

For more on how pay compares across Australia, see the states page or explore topics related to pay and conditions.