Do you have a salary sacrifice arrangement with your employees?
Have you ever thought about offering such an arrangement to your employees? …or does the word sacrifice near salary scare you?
Salary sacrifice arrangements aren’t as scary as they may seem. But there are a few things you’ll need to qualify for in order to get one.
Let’s try to understand salary sacrifice and find out what are its benefits and risks.
What is salary sacrifice?
A salary sacrifice is a formal arrangement an employee makes with their employer to receive a lower salary in return for other benefits, of a similar value.
This is often referred to as salary packaging or total remuneration packaging.
Did you know? It’s called salary sacrifice because the employee sacrifices part of their monthly salary for some desired benefits.
It doesn’t sound that scary anymore, does it?
Each party involved gets their own share of benefits and advantages out of this arrangement:
- The employer can use this method to motivate their employee to increase their productivity
- The employee gets what they want to make their job easier or more pleasant
Tip: Salary sacrifice must be agreed upon by both sides, the employer and the employee.
What can you choose as a salary sacrifice?
Usually, employees agree to salary sacrifice in return for benefits that will make their job easier. Some of the most common salary package items include:
- car fringe benefits
- expense payment fringe benefits
- living away from home allowance fringe benefits
- car parking fringe benefits
Worried about the FBT (fringe benefits tax)?
The good news is there are a few work-related items excepted from FBT you can opt for in your salary sacrifice agreement. Here are a few:
- portable electronic devices
- computer software
- protective clothing
- a briefcase
- a tool of trade
However, the work-related items excepted from FBT are limited to:
- items primarily for work-related use
- one item per FBT year for items that have a substantially identical function, unless the item is a replacement item
What are the conditions for an effective salary sacrifice arrangement?
An effective salary sacrifice benefit should follow the following requirements:
- The arrangement should be entered into before you perform the work
- There should be an agreement between you and your employer (the contract is usually in writing but may also be a verbal one)
- There should be no access to the sacrificed salary, the sacrificed salary must be permanently forgone for the period of the arrangement.
You might also be interested in: What You Need To Know Before Claiming A Tax Deduction For Your Work Clothing
Would you fancy offering your employees the choice to salary sacrifice?
Discuss your options with your employees. Do they like the idea? Then you can go ahead and choose the items to “sacrifice”.
Not sure how to get started? Are there any laws as to what you can or cannot add as a salary sacrifice? Let’s get in touch – I’d love to help you figure it all out in just a few easy steps.