Salary Packaging: How It Works in Australia

By Mohammad Barzegar, Director, TQN Personnel · Reviewed by Mohammad Sakhvidi · Updated October 2026 · 12 min read

What is salary packaging? It is an agreement with your employer to swap part of your pre-tax pay for benefits, most often extra super, and for 2026-27 the concessional super cap of $32,500 includes both salary-sacrificed super and your employer's super guarantee contributions. This guide is for workers and employers, and it covers salary sacrifice in Australia, how to salary sacrifice, what a salary sacrifice agreement should say, and the limits to check before you sign.

What is salary packaging?

Salary packaging, also called salary sacrifice, lets you give up part of your future pre-tax salary in return for a benefit. The employer pays the benefit, and the money is not taxed as cash pay.

Your employer does not have to offer it, and it applies only to pay you have not yet earned. Many people first hear about it from payroll or HR when they start a new job.

Term	Meaning	Why it matters
Salary packaging	An arrangement where an employee gives up part of future pre-tax pay in exchange for a benefit paid by the employer.	It can lower taxable income, but it also lowers your take-home cash.
Salary sacrifice	The most common term for the same idea, especially when the benefit is extra super.	It is the phrase most people search for, so you will see it used interchangeably.
Salary sacrifice agreement	A written agreement that sets the benefit, the amount, the start date and how to change or end it.	It should be in place before the pay is earned.
Concessional contribution	A before-tax super contribution, including employer contributions and salary-sacrificed amounts.	Total concessional contributions have an annual cap, which is $32,500 for 2026-27.
Super guarantee	The minimum employer super contribution, which is 12% of ordinary time earnings for 2026-27.	It counts towards the same concessional cap as your extra contributions.
Fringe benefits tax	A tax paid by the employer on some non-cash benefits provided to employees.	It affects which benefits an employer can offer and how they are priced.

What is salary packaging and who can use it

Salary packaging is an arrangement between an employee and an employer. Most private-sector employees are in the national system under the Fair Work Act 2009 (Cth), but NSW state public sector employees may have separate rules.

Situation	How salary packaging applies
Full-time employee	Can ask the employer to offer salary packaging. The employer decides whether it will, and which benefits are allowed.
Part-time employee	Same options as a full-timer, with the amount based on the pay they actually earn.
Casual employee	Can salary sacrifice if the employer offers it. Casuals receive a 25% loading under most awards, so check what is sacrificed from.
Labour hire worker	Employed by the provider, so the provider decides whether to offer the arrangement.
Genuine contractor	Not an employee, so employer salary sacrifice does not apply. An ABN does not decide the question, so check the Fair Work Ombudsman and ATO tools.
Not-for-profit employee	May have access to extra packaging options and caps, which are covered in our guide below.

Salary sacrifice Australia: rules and limits

The rules sit across the tax and super systems. These are the figures that matter, with the dates they apply from.

Item	Figure	Applies from or notes
Super guarantee	12% of ordinary time earnings	2026-27, unchanged from 1 July 2025
Payday super	Within 7 business days of payday	Starts 1 July 2026
Concessional super cap	$32,500	2026-27, includes salary-sacrificed super and employer super guarantee
Maximum super contribution base	$270,830 per year	2026-27
Maximum super guarantee amount	$32,499.60	2026-27, on the maximum contribution base
National minimum wage	$26.44 per hour	From the first full pay period starting on or after 1 July 2026

How to salary sacrifice step by step

Take your time with the paperwork. A payslip that changes after you sign is much easier to explain if you understood the numbers first.

1. Ask your employer or payroll team whether they offer salary packaging, and which benefits are on the list.
2. Check your award or agreement for rules that affect pay, such as the minimum rate or allowances, using the Fair Work Ombudsman pay guide.
3. Work out your total super for 2026-27, including the employer's 12% super guarantee, so the total stays under the $32,500 concessional cap.
4. Choose the benefit and the amount per pay period, and decide whether you want a fixed dollar amount or a percentage of salary.
5. Read and sign the salary sacrifice agreement before the pay is earned, and keep a copy.
6. Check your first payslip to confirm the sacrificed amount, the cash pay and the super contribution are all correct.
7. Review the arrangement each year, and ask payroll for a written change if your income or goals change.

Worked example (structure)	What to check
Start with the cap	The concessional cap is $32,500 for 2026-27.
Subtract employer super	The employer pays 12% of ordinary time earnings as super guarantee, which counts towards the same cap.
Remaining room	The amount left is the most you can salary sacrifice into super before the cap is reached.
High-income check	At the maximum contribution base of $270,830, the super guarantee is $32,499.60, which uses almost all of the cap on its own.

Salary sacrifice agreement: what to put in writing

A good agreement protects both sides and avoids pay disputes later. Use a reviewed template and get advice before you sign.

• State the benefit, such as extra super, and the exact amount or percentage that will be taken from each pay.
• Set the start date, and confirm the arrangement covers only pay earned after the date you both sign.
• Explain how you can change or cancel the arrangement and how much notice payroll needs.
• Confirm that the arrangement cannot reduce award, National Employment Standards or enterprise agreement entitlements.
• Say how the sacrificed amount affects other pay items, such as leave loading or redundancy pay, based on your award or contract.
• Record who pays any fees, and who is responsible for reporting the benefit through payroll and the ATO.

Salary sacrifice package: what you can include

Employers choose which benefits to offer. The common items are below, and each one has its own tax treatment.

• Extra super contributions, which are paid before tax into your fund and count towards the concessional cap.
• A novated lease for a car, where the employer deducts the lease payments from your pre-tax pay under a three-way arrangement.
• Work-related items such as a laptop or phone, if the employer offers them and the tax rules allow it.
• Professional memberships or training that are directly connected to your work, where the employer will pay and the tax rules fit.
• Benefits that are specific to not-for-profit and health employers, which can include meal, entertainment and living expense packaging.
• A fringe benefit that attracts fringe benefits tax, which may be passed on to you or may lower the package you can choose.

Not-for-profit salary packaging

Employers in some not-for-profit sectors, including certain charities and health organisations, can offer extra packaging options. The caps, eligibility and rules are different from those for a standard employer.

Our guide to not-for-profit salary packaging explains who qualifies, how the extra concessions work and what to check before you sign.

• Ask HR whether your employer is eligible for the extra concessions and how they are administered.
• Check how much of the package is cash, how much is benefits and how the arrangement shows on your payslip.
• Remember that the super concessional cap of $32,500 for 2026-27 still applies if you salary sacrifice into super.
• Keep records of every benefit claimed, because the tax office may ask how the package was valued.

Employer checklist for salary packaging

Employers need to get the agreement, payroll and reporting right. These are the items to check each pay cycle.

• Put the salary sacrifice agreement in writing, and apply it only to pay earned after it is signed.
• Calculate the super guarantee at 12% on ordinary time earnings, and do not use sacrificed amounts to reduce what you owe.
• Pay super with wages so it reaches the fund within 7 business days of payday under payday super.
• Issue payslips within 1 working day of payday, and show the sacrificed amount clearly.
• Report payroll to the ATO through Single Touch Payroll on or before each payday.
• Keep time and wage records for 7 years, along with the signed agreement and any changes.
• Check pay still meets the award, such as the fast food award or an enterprise agreement.
• Explain how the arrangement affects leave, penalties and public holiday pay rates in plain language.

Salary packaging and your pay

Packaging changes how your pay is built, but not what you are owed. Check the minimum wage australia guide and your pay guide first.

• Check that your cash pay still meets the award or the national minimum wage of $26.44 per hour from 1 July 2026, as far as the rules allow.
• Ask in writing how the arrangement affects overtime, penalty rates and leave loading under your award.
• Read the super guarantee rules, so you know how your employer contributions are calculated.
• Contact the Fair Work Ombudsman on 13 13 94 if your pay looks short or you are pressured to agree.

Common mistakes to avoid with salary packaging

• Signing after the work is done, because salary sacrifice generally applies only to pay that you have not yet earned.
• Forgetting that the employer's super guarantee uses up part of the $32,500 concessional cap.
• Assuming every benefit is tax-free, when many items attract fringe benefits tax or have specific rules.
• Letting salary sacrifice take cash pay below what the award or minimum wage requires.
• Skipping a review when your income or job changes, so the package no longer suits you.
• Not keeping the agreement, payslips and records, which makes errors hard to fix later.

Salary packaging FAQ

What is salary packaging?

What is salary packaging? It is a written arrangement where you give up part of your future pre-tax pay for a benefit paid by your employer, such as extra super. Your employer does not have to offer it, and the agreement cannot remove award or NES entitlements.

How to salary sacrifice?

Ask your employer whether they offer it, check your award and super cap, then sign a written agreement before the pay is earned. Choose the benefit and amount, and check your first payslip. The 2026-27 concessional super cap is $32,500, including employer contributions.

Is salary sacrifice the same across Australia?

Salary sacrifice rules come from federal tax and super law, so the main rules apply nationally. State differences matter more for payroll tax and for state public sector employment, so check your own employer. Always read the agreement and get advice from the ATO or a tax adviser.

Does salary sacrifice reduce my employer's super?

It should not. The super guarantee is 12% of ordinary time earnings for 2026-27, and your employer should not use sacrificed amounts to reduce it. Check your payslip and your fund statement to confirm the contribution is based on the correct amount.

Can casuals salary sacrifice?

Yes, if the employer offers it. Casuals should check the 25% casual loading under most awards, and whether the package is taken from the base rate or the loaded rate. The minimum for award-free casuals is $33.05 per hour from 1 July 2026.

Is there a limit on salary sacrifice into super?

Yes. Total concessional contributions are capped at $32,500 for 2026-27, and this includes your employer's super guarantee. At the maximum contribution base of $270,830, the super guarantee is $32,499.60, so there is almost no room left to salary sacrifice.

Next step: ask about salary packaging before you sign

Ask your employer what is offered, check the cap and read the agreement before you agree. At TQN Personnel, we help workers find roles across Sydney, so you can register for work and ask each new employer about packaging. This is general information, not legal, tax or financial advice, so check the Fair Work Ombudsman, the ATO or an employment lawyer for your situation.

Related guides

• Not-for-profit salary packaging
• Minimum wage australia
• Fast food award
• Super guarantee
• Enterprise agreements
• Single Touch Payroll
• Public holiday pay rates