How salary sacrifice super affects your take-home pay

How salary sacrifice super works

Salary sacrifice super is an arrangement where you and your employer agree to divert part of your pre-tax salary into your super fund instead of paying it to you as cash. As the Australian Taxation Office explains, these contributions are treated as employer contributions and are taxed in the super fund at 15%, which is often lower than your marginal tax rate. The sacrificed amount is not included in your assessable income for PAYG withholding, so you pay less income tax and Medicare levy on that portion.

What happens to your take-home pay

When you salary sacrifice super, your employer reduces the cash salary they pay you by the sacrificed amount. For example, if your salary is $100,000 and you sacrifice $10,000 into super, your taxable income becomes $90,000. Your take-home pay is calculated on the $90,000 figure, so you keep more of what you earn after tax. However, your super fund receives the full $10,000 (plus the 15% tax is deducted inside the fund). The site notes that salary packaging is usually more effective for people on middle to high incomes because their marginal tax rate is higher than 15%.

How it compares to the national minimum wage and full-time ordinary time earnings

The national minimum wage is $26.44 per hour and $1,004.90 per week (annualised $52,255). Full-time adult ordinary time earnings average $2,083.70 per week ($108,352 per year). If you earn at the minimum wage, salary sacrifice super may not be beneficial because your marginal tax rate is low (likely 16% including the 2% Medicare levy, after the tax-free threshold). The tax saving from salary sacrifice is small, and you may need the cash for living expenses. For someone on full-time ordinary time earnings, the marginal rate is 32% (30% plus 2% Medicare levy) or higher, so salary sacrifice super can save up to 17% in tax on the sacrificed amount (32% minus 15% super tax).

Tax and Medicare levy considerations

Salary sacrifice super reduces your taxable income, which can also lower your Medicare levy liability. The Medicare levy is 2% of taxable income, but low-income thresholds apply. For 2026–27, the single threshold is $28,011 (no levy) and $35,013 (full levy). If your taxable income after salary sacrifice falls below these thresholds, you may pay reduced or no Medicare levy. However, most full-time workers earn above $35,013, so they pay the full 2%.

Concessional contributions cap and Division 293 tax

There is a limit on how much you can contribute to super at the concessional 15% tax rate. For 2026–27, the cap is $32,500. This includes your employer's super guarantee (12% of your ordinary time earnings) plus any salary sacrifice contributions. If you exceed the cap, the excess is taxed at your marginal rate plus an additional charge. Also, if your combined income and concessional contributions exceed $250,000, you may be liable for Division 293 tax, which increases the tax on concessional contributions to 30%.

Practical steps to consider

Before setting up a salary sacrifice super arrangement, check with your employer whether they offer it. Then calculate your expected super guarantee (12% of your salary) and see how much room you have under the $32,500 cap. Use the Clearance tool to estimate your take-home pay with and without salary sacrifice. Also consider your cash flow needs: sacrificing too much could leave you short for rent or bills.

Salary sacrifice super and your overall financial picture

Salary sacrifice super is one way to boost your retirement savings while reducing tax. But it's not the only option. You can also make personal deductible contributions (claim a tax deduction) or use after-tax contributions (non-concessional). The Super page has more details on different contribution types. Remember that super is generally locked away until you reach preservation age (usually 60).