Salary sacrifice versus salary packaging

Salary Packaging is approved by the Australian Tax Office (ATO) as a way of restructuring your income – if you are an employee of a Public Benevolent Institution (PBI) in Australia. Salary Packaging enables employees to buy a range of items out of pre-tax salary rather than after-tax salary. This will result in a net benefit to the employee. It is not the same as Salary Sacrificing – which is available to any employee.

In contrast to Salary Packaging, Salary Sacrificing 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.” (Source: ATO Website).

CBB already provides Salary Packaging to many PBI staff, from all around Australia. It was introduced by the ATO to help to bridge the remuneration gap between the salary of PBI staff and the salaries of government and For Profit employees. In effect, it provides PBI staff with a pay rise as they are entitled to a larger tax-free portion of income than others, up to $16,000 per year. It involves payroll taking a lump sumfrom your income each pay and allocating it toward salary packaging. This means of course that your taxable income is reduced, thereby increasing your take-home pay. Depending upon the type of salary packaging benefits an employer allows, your salary packaging funds can be paid directly to: mortgage, rent, credit card debt, personal loan, utility bills or even to a salary packaging card that can be used almost anywhere.

Salary packaging benefits do vary from person to person and CBB is able to assist employers in the promotion and delivery of benefits to their staff. As every person is different, CBB’s salary packaging representatives like to speak with individuals one-on-one, to provide a sound understanding of the service and to ensure that they are getting the best use of the benefit possible. CBB also offers an on-line salary packaging calculator where eligible staff can see first-hand the financial benefits available to them.

From a management point of view, Salary Packaging assists in two important ways:
  1. Workers obtain a pay increase at no expense to the employer;
  2. Staff turnover is reduced, helping the employer to minimise the time, effort and costs of recruitment and induction and consistency of care to the worker is increased.

In a nutshell, Salary Packaging is a valuable tool to use as part of managers’ staff attraction and retention strategies, thereby assisting Not for Profits to achieve their social objectives and to fulfil their missions.