Posted by Mark Phillips on 26 May 2016
“So, what are you expecting in terms of salary?”
For many job applicants, this is the toughest interview question to answer, but take-home salary need only be one component of compensation.
Salary packaging – or salary sacrificing, can have a big bearing on how much eventually ends up in your pocket.
What is salary packaging?
Salary packaging is an Australian Tax Office-approved agreement between an employee and employer, where the employee agrees to sacrifice part of his/her base salary to pay for benefits offered by the employer. Items included in the salary package are paid for in pre-tax instead of after-tax dollars. This means you’re left with a lower taxable income: short-term pain for medium-term benefit.
What can be packaged?
There is generally no constraint on what can be packaged. The types of benefits generally provided in salary sacrifice arrangements by employers include non-financial incentives, exempt benefits and superannuation. However, ‘sacrificing’ salary is usually more effective for workers on mid to high incomes, in part because they are less likely to miss the entitlement they forgo.
Some employers restrict who can package certain benefits, while others do not offer the service at all, even though most services are outsourced and the employee foots the administration fee. The majority of employers do, however, have to pay fringe benefits tax (FBT) on the value of benefits they provide to each employee, in excess of $2,000 per year.
But even though employees do not have an automatic right to salary package, most employers will offer salary sacrifice into super, which is FBT exempt.
There is a $25,000 limit, which includes any super payments from employers as well as your own contributions, but you pay the contribution in pre-taxed dollars, meaning more money in your fund when you retire, for less money contributed.
Regardless, it is important to determine in advance what a potential employer is or isn’t prepared to put on the table. Items commonly in a salary package include, but are not confined to:
- Motor vehicles
- Mobile phones
- Laptop computers
- Health insurance
- School or childcare fees
There’s no denying that salary is a major factor when accepting a job offer. If you’ve made it to the end of the application process, the company probably wants to employ you as much as you want to be employed. Salary packaging is something you may want to discuss before you sign a contract.
If – for whatever reason – it’s not possible, it doesn’t have to be a deal-breaker. Depending on your individual circumstances, new responsibilities, better opportunities for promotion or benefits such as flexible working hours or the option to sometimes telecommute might be more important.
However, there is also a chance you could be out of pocket long-term, and an increase in base salary to proportionately offset the loss is worth considering.
Before you sign
There are few second chances to renegotiate a salary package. You must enter into a written arrangement, detailing all terms, before you earn the income – it can never be retrospective. There can be no access to the salary that is sacrificed, and any fringe benefit that is cashed out will be taxed as normal income. If you’re offered the job, make sure you go in with your eyes wide open.
Curious to find out what the market is paying today, download the Robert Half Salary Guide today.