What is Salary Packaging and How Does It Work?

Salary Packaging means to arrange your salary or wages in a tax effective way so that you pay less tax.

This article sets out to demystify Salary Packaging and explain it in a simple and easy to understand way so that more Australian’s can benefit. It is an easy to understand guide on how salary packaging works for employees and employers and will show you how you can maximize your salary, no matter which industry you work in.

Who is Eligible for Salary Packaging?

Most employees in Australia are eligible to package their salary in a way that allows them to get more benefit from their current income than they are currently enjoying, but very few people do it and even fewer properly understand it. If you’re an employee and you don’t fully understand salary packaging, then you are probably not fully maximizing your potential income.

What can be Salary Packaged?

Salary packaging your next car (or even your current car), a new laptop or tablet or your superannuation can give you a significant financial advantage.

If you were offered a pay increase, would you take it? Most people in the workforce would answer yes. For those who haven’t at least considered salary packaging to find out what you are eligible to package, you are essentially telling your employer that you prefer to be paid less than what you are entitled to.

Why Should You Salary Package?

If someone told you that they knew a way that you could pay less tax, would you want to know about it? If all that you had to do was fill out a form, do you think that you would take the time to do it to save yourself hundreds or even thousands of dollars per year?

By minimizing your tax, you increase the purchasing power of your current income. You increase the value of what you can buy with the money that you currently make. You can get a pay rise today by simply being paid in a more tax-effective way. The reason why you should salary package is so that you can pay less tax.

Benefits for Employers

Salary Packaging has significant benefits to employees by allowing them to maximize the purchasing power of their income, but it’s not all about the employee’s; employers also benefit from having a more satisfied and better-remunerated workforce, a lower churn rate of staff and become an employer of choice for prospective employees. By offering salary packaging to their employee’s, employers are able to help their employee’s get the most out of the remuneration package without affecting the bottom line.

How does Salary Packaging Work?

Salary Packaging is an arrangement between an employer and an employee, where the employee agrees to forgo part of their salary or wages in return for the employer providing them with benefits of a similar value. By paying for these things before you have to pay tax you end up with greater purchasing power with the same income.

The effect of salary packaging is that you are left with more in your take home pay than you would have if you chose to pay for certain items out of your post-tax salary. For most Australian’s these items typically include laptops, superannuation and cars however, if you are employed by a Not for Profit or Public Benevolent Institution, or you work in the Public Health system this could also include meal entertainment as well as your mortgage, rent or even your everyday expenses up to a maximum level.

To work out how much, you’ll save, head over to our salary packaging calculator or contact our team with any questions you may have.