How salary packaging for employers affects your take-home pay

How salary packaging for employers changes your net pay

When you compare job offers, the headline salary is only part of the story. What matters is the amount that lands in your bank account after tax, the Medicare levy, and any salary sacrifice arrangements. Salary packaging for employers – also called salary sacrificing – lets you swap part of your pre-tax pay for benefits like a car, laptop, or extra super. This can reduce your taxable income and boost your take-home pay, but only if the numbers work in your favour.

What salary packaging is and how it works

Salary packaging is an agreement between you and your employer. You forgo some salary before tax, and your employer provides benefits of similar value. The Australian Taxation Office explains that this arrangement reduces your taxable income, meaning you may pay less tax . There is no restriction on the types of benefits, but your employer may have to pay fringe benefits tax (FBT) on many of them. To make the arrangement effective, you must enter it before you earn the salary, have a written agreement, and not have access to the sacrificed amount.

How to compare job offers using take-home pay

Start with your base salary. Then consider whether the employer offers salary packaging. If they do, you need to estimate your net disposable income after tax, Medicare, and any employee contributions. Use the ATO’s tax withheld calculator or a simple spreadsheet. For example, a single person earning $65,000 in 2026–27 pays about $10,288 income tax plus $1,300 Medicare levy (2%), leaving $53,412 after tax. If you salary package a car worth $17,353 (the FBT taxable value), your taxable income drops to $47,647, tax falls to $5,082, Medicare to $953, and net after tax is $41,612 – but you still have to pay car expenses of $11,500, leaving $41,912. That’s almost identical to no packaging. However, if you make a $7,000 employee contribution to reduce FBT, your taxable income is $60,855, tax $9,045, Medicare $1,217, net after tax $50,593, minus $7,000 contribution equals $43,593 – a gain of about $1,680. So packaging can be worthwhile, but you must model your own situation.

The role of the Medicare levy and thresholds

Every resident pays the Medicare levy of 2% of your taxable income. For 2026–27, the single-person thresholds are $28,011 and $35,013. If your taxable income is below $28,011, you pay no levy. Between $28,011 and $35,013, you pay 10c per $1 over the lower threshold until you reach the full 2% at $35,013. Full-time salaries above that pay the full 2%. Salary packaging reduces your taxable income, so it can lower your Medicare levy or even bring you below the threshold. But remember: if you package a fringe benefit, the reportable fringe benefits amount may appear on your income statement and affect your Medicare levy surcharge or other obligations.

Super and salary packaging

Salary sacrificed super contributions are not fringe benefits – they are employer contributions to your super fund. They are taxed at 15% inside super, which is often lower than your marginal rate. However, they count towards your concessional cap ($32,500 for 2026–27). Your employer must still pay the super guarantee (12% from 1 July 2026) on your original salary, not the sacrificed amount. Moneysmart notes that salary packaging into super can be tax-effective, but you cannot exceed the cap without paying extra tax .

Practical steps to compare offers

1. Get the full remuneration package: Ask the employer what benefits are available and whether they charge an administration fee.
2. Estimate your taxable income: Subtract the salary sacrifice amount from your base salary.
3. Calculate tax and Medicare: Use the 2026–27 rates (nil up to $18,200, then 15c per $1 over $18,200 up to $45,000, etc.) and add 2% Medicare on taxable income above the thresholds.
4. Include employee contributions: If you make post-tax contributions to reduce FBT, subtract those from your after-tax income.
5. Add back any expenses you would have paid anyway: For example, if you package a car, you no longer pay running costs out of pocket – but the benefit may be taxable.
6. Compare net disposable income: This is the amount you have left after all taxes, contributions, and unavoidable expenses.

What about the minimum wage?

The national minimum wage is $26.44 per hour and $1,004.90 per week (from 1 July 2026). At that level, salary packaging is unlikely to be beneficial because your taxable income is already low. The ATO’s example uses a $65,000 salary; at minimum wage (about $52,255 annual), the tax savings are smaller. Always check whether the benefits offered are worth the reduction in cash salary.

Summary

Salary packaging for employers can increase your take-home pay if structured correctly. The key is to compare the net disposable income after all taxes and contributions, not just the headline salary. Use the ATO’s resources and your own tax bracket to decide. Remember that super contributions through salary sacrifice are a separate, often tax-effective option. For most employees, the best approach is to run the numbers with your actual figures before accepting an offer.

For more details, see our guides on Salary packaging and Take-home pay.