What is a salary sacrifice arrangement?
“It is an arrangement between an employer and an employee, where the employee agrees to forgo part of their future entitlement to salary or wages in return for the employer providing them with benefits of a similar value” (ATO). For example, an employee may forgo part of their salary for additional superannuation contributions, or they may forgo salary for benefits such as parking, a novated lease etc.
Effective salary sacrifice arrangement:
In order to salary sacrifice, the arrangement needs to be an effective salary sacrifice.
In order to be an effective salary sacrifice:
- an arrangement between the employee and employer needs to be put into place before the employee becomes entitled to the amount / before the employee performs the work
- there should be an agreement between the employee and employer – the arrangement should be in writing
- there should be no access to the sacrificed salary – the sacrificed salary must be permanently forgone for the period of the arrangement
For example, if an employee wants to salary sacrifice a bonus, an arrangement needs to be put into place before the employee becomes entitled to that bonus (e.g before the bonus is announced/before the employee does the work to earn the bonus). Once an employee becomes entitled to the bonus, it is too late to salary sacrifice.
For example, if an employee wants to salary sacrifice annual leave entitlements on termination, and if a salary sacrifice arrangement is not already in place to do this, the employee can only request to salary sacrifice future accrued annual leave (not leave that has already been accrued). Once the leave has already been accrued, it is too late to salary sacrifice.
Frequently asked questions:
Can ETPs be salary sacrificed into super? No, ETPs can no longer be salary sacrificed into super. The ability to do this ceased in 2012 (after a 5 year transition).
If an employee salary sacrifices into superannuation, where does it go on the payment summary? Salary sacrifice into super would show as a Reportable Employer Superannuation Contribution (RESC) on the employees payment summary.
If an employee salary sacrifices for benefits, where does it go on the payment summary? If the value of certain benefits (other than excluded fringe benefits) provided to the employee in an FBT year is over $2000, then the grossed up values will be reportable on the payment summary as a Reportable Fringe Benefit.