Sometimes called a salary sacrifice, salary packaging is when employers offer employees many valuable benefits in exchange for the agreement that employees will take smaller salaries. This is a strategy used for compensation which has potential benefits for both employees and employers.
In a salary packaging agreement, employees agree to get a lower base salary in return for other similar-value benefits. Your pay check’s sacrificed portion goes to your employer for funding the additional benefits. Plus, employees get the freedom to select which products they want to include in their package in line with the packaging policy of their employers.
Salary packaging plans save you money because you only pay tax on your basic income. Since you won’t pay taxes on your pay’s sacrificed portion, you will get all the equivalent services in the full value of what you gave up, not the post-taxes amount.
For example, you might cut your annual salary of $36,000 to $34,000 in exchange of services for child care. Does this sound good to you? Here is a course you might want to look into that shows you how to negotiate your salary package that gets you real results.
What Can be Packaged?
There are three categories that the benefits fall into although there is no restriction to what can be included. This includes superannuation benefits, exempt benefits and fringe benefits. Exempt benefits are the kind you can receive but won’t be included in the summary of your payments.
Your employer won’t have to pay fringe benefit tax on exempt benefits. This can include briefcases, tools of the trade, protective gear, computer software and portable electronic devices. It can also include work-related self-education expenses, income protection/disability premiums on insurance, benefits of airline lounges, subscriptions to professional association and fees associated with these.
During tax season, the value of benefits you get every financial year will appear. Fringe benefits include childcare fees, school fees, loans, health insurance, cars and personal expenses. There are also some benefits such as car parking and entertainment that won’t appear at the end of the summary of your annual payment. These are called non-reportable fringe benefits.
Advantages of Salary Packaging for Employers
For employers, salary packaging gives you the advantage of providing thousands of dollars to your employees in extra take-home pay for minimal costs to you. A salary package can also be a key component in retaining and attracting quality staff. By offering these services, you become a more attractive employer which gives you a big advantage in the competitive marketplace of today.
Companies who offer a great salary package will be able to vie for the most talented employees in any field. Employees receiving a great salary package are more likely to be happy with their work. This article gives you 4 key steps you will need to negotiate the best deal.
Employers can customize salary packages for employees according to what they want. However, no law requires employers to offer salary packages.
Advantages of Salary Packaging for Employees
Save on Car Expenses
When your salary package includes a vehicle under a ‘novated lease’ arrangement, you will be able to cut down on vehicle expenses. This is because when a car is taken out on a novated lease, you can pay for the running costs and make the lease repayments with a combination of pre-tax and post-tax dollars. Rather than one big lump sum, your running costs are broken down into monthly installments that are quite manageable.
This means that throughout the year, you won’t have to find funds to pay for larger bills like registration and insurance. If this is something you may be interested in negotiating with your employer, you might want to take this course that helps put you in the right mindset for negotiation.
More Take Home Pay
With a salary package, you may end up with more take home pay (i.e. more money) in your pocket. This is a great way to increase your spending money and make your salary go further. Everyone has expenses such as bills, groceries or rent/mortgage payments. With a salary package, you may be able to pay for these things which increases your actual take home pay. Especially if you take this negotiation course which shows you exactly how to negotiate a great deal.
Pay Less Taxes
Depending on the sector and the industry you happen to be employed in, when you get a salary package, you could be eligible to pay for a range of expenses using your pre-tax salary. This includes contributions, additional superannuation and vehicle running costs, among others. If you work in a charitable or health organization your salary package may even include rent or mortgage payments.
Memberships and Vouchers
Clubs and universities often offer a discount and vouchers as part of their employees’ salary packages. As an employee, you would be able to use the voucher in all the places that the employer owns. For instance, as part of their salary package, the University of Melbourne offers reductions in course fees, reduced museum membership costs and book shop vouchers as part of the compensation.
One popular advantage of receiving a salary package is that you have the opportunity to make it an investment. Contributions into retirement funds and other accounts are considered a fringe benefit and are taken before tax. This means less immediate money but more money towards a retirement fund. There cannot be direct access to the money being sacrificed for this to qualify as a salary package.
Redirecting some of your pre-taxes income into a superannuation has benefits for both the employer and the employee. The sacrificed salary contribution gets taxed fifteen per cent by the superannuation, which is the same contribution as your employer. For many individuals, this will be less than their marginal rate of taxes.
Keep in mind that your employer is not requires to pay fringe benefit taxes on superannuation. If you happen to be interested in negotiating for a salary package instead of a regular salary or if you want more benefits included in your current package, this negotiation course will show you how to go about doing exactly that.