Are you thinking about offering incentives to staff in the form of salary packages?
Sometimes the terms ‘salary sacrifice’ and ‘salary packaging’ are used interchangeably, but there are differences between the two.
A salary sacrifice is when the employee chooses to forgo an amount of future earnings before tax to other benefits paid by the employer. Salary sacrificing to superannuation is the most common arrangement, but it can be other benefits such as mortgage repayments.
Salary sacrifice agreements can be entered into or changed at any time upon a written agreement between the employer and employee.
The employer pays the agreed amount of pre-tax earnings into the super fund or other benefit and calculates tax on the remaining amount. There is no additional cost to the employer for a salary sacrifice arrangement and the employee gains from paying less tax.
A salary package refers to a total remuneration arrangement and is usually negotiated before engaging the employee. The package may include various benefits such as a work vehicle, credit card repayments or a laptop computer, and may also include superannuation salary sacrifice. The total remuneration is calculated on all the benefits included, not just the salary portion.
There is more employer administration involved in a salary package arrangement. Still, it can be an effective way of offering employees attractive benefits which can reduce their taxable income, in addition to a salary.
Let Us Help You Work Out the Best Arrangements for Your Business and Staff
While setting up superannuation salary sacrifice is straightforward, some arrangements are more complex and have tax implications for the employee or fringe benefits tax consequences for the employer. In addition, there are many rules around acceptable agreements and limits to arrangements.
Talk to us if you’re considering offering new employees salary packages or negotiating new agreements with existing valued employees. We’ll help work out the best arrangements for your business and staff.