Salary sacrifice explained: how to compare job offers using your take-home pay

Salary sacrifice explained: how to compare job offers using your take-home pay

When you receive a job offer, the headline salary often looks attractive. But what actually lands in your bank account after tax, Medicare, and any salary sacrifice arrangements? Understanding salary sacrifice explained in practical terms helps you compare offers on an equal footing.

What is salary sacrifice?

Salary sacrifice (also called salary packaging) is an agreement between you and your employer to forgo part of your pre-tax salary in exchange for benefits of similar value. The Australian Taxation Office explains that this reduces your taxable income, so you pay less income tax and Medicare levy. Common benefits include a car, laptop, or additional super contributions.

Because the benefit replaces salary, your employer may have to pay fringe benefits tax (FBT) on the packaged item. This can limit what employers offer, but many still provide popular options like novated leases or salary sacrifice super.

How salary sacrifice affects your take-home pay

Your take-home pay is the amount after income tax and the Medicare levy (2% of taxable income). By reducing your taxable income through salary sacrifice, you lower both tax and Medicare. However, you also give up cash salary, so the net effect depends on the value of the benefit and any employee contributions you make.

The ATO illustrates this with a $65,000 annual salary in 2025–26. Without salary sacrifice, net disposable income is $41,912. With a car packaged and an employee contribution of $7,000, net disposable income rises to $43,593.40. The key is that the benefit (car) replaces an expense you would have paid with after-tax dollars, freeing up cash.

For 2026–27, the tax rates are: nil on the first $18,200, then 15c per dollar up to $45,000, then 30c per dollar up to $135,000. The Medicare levy adds 2%. If you earn $60,000, your tax (excluding Medicare) is $8,520, plus $1,200 Medicare, leaving $50,280. Salary sacrifice could reduce that taxable income further.

Comparing job offers: focus on net disposable income

When comparing two job offers, don't just look at the gross salary. Consider:

• Salary sacrifice options – Does the employer offer packaging? What benefits are available?
• Employee contributions – Some arrangements require you to contribute after-tax dollars, which reduces the benefit.
• FBT implications – If the benefit is subject to FBT, it may be reported on your payment summary and affect government benefits or the Medicare levy surcharge.
• Super guarantee – Your employer must still pay the 12% super guarantee on your ordinary time earnings, even if you salary sacrifice extra super.

A useful approach is to calculate your net disposable income – the cash you have after tax and after paying for expenses that the packaged benefit covers. The ATO's example shows that even with a lower taxable income, your disposable cash can be higher if the benefit replaces a significant expense.

Impact on Medicare and government benefits

Salary sacrifice reduces your taxable income, which may lower your Medicare levy (if you are below the full-rate threshold) and could affect the Medicare levy surcharge if you don't have private hospital cover. The single thresholds are $28,011 and $35,013 – if your taxable income falls between these, you pay a reduced Medicare levy.

It can also affect child support payments, study loan repayments, and some tax offsets. Always check with a professional if you have complex circumstances.

Super salary sacrifice

One of the most common and tax-effective forms of salary sacrifice is additional super contributions. These are taxed at 15% inside your super fund, compared to your marginal rate (which could be 30% or more). The concessional contribution cap for 2026–27 is $32,500, including your employer's super guarantee. If you exceed it, you pay extra tax.

Salary sacrifice super is not a fringe benefit, so no FBT applies. It's a straightforward way to boost your retirement savings while reducing your current tax bill.

Practical steps to compare offers

1. Get the full remuneration package – Ask for the total value including super, salary sacrifice options, and any employee contributions required.
2. Calculate your taxable income – Subtract the salary sacrifice amount from the gross salary.
3. Estimate tax and Medicare – Use the 2026–27 rates and the 2% Medicare levy. Remember the low-income tax offset (LITO) if your taxable income is under $66,667.
4. Determine net disposable income – Subtract any employee contributions and add back the value of benefits you would otherwise pay for.
5. Compare apples with apples – Use the same method for each offer.

For more details, see our guides on Take-home pay and Salary packaging. You can also check the Tax and Medicare page for current rates.

Final thoughts

Salary sacrifice can be a powerful tool to increase your after-tax income, but it requires careful comparison. The amount that reaches your bank account depends on the specific package, not just the headline salary. By focusing on net disposable income, you can make an informed choice between job offers.

Remember that salary sacrifice must be arranged before you earn the income, and you cannot claim a tax deduction for expenses your employer pays. Always review the terms with your employer or a tax professional.

For more on how super fits in, see our Super page.