What is salary packaging?
Salary packaging is an alternative way of being paid your annual remuneration, to optimise the benefits you receive. Some of your gross salary is sacrificed in return for non-cash, employer provided benefits. Typically, employees are paid a gross salary with income taxes deducted through payroll, and are left to spend or save the rest. Compulsory superannuation is a form of salary packaging – total employee remuneration consists of a gross salary and contributions to superannuation. The idea of salary packaging is to take this one step further and enable employees to vary the breakup of their cash salary, and to include other non-cash benefits (beyond superannuation and after tax cash) in their remuneration package.
Salary packaging combines both benefits and cash into a ‘package’. Instead of earning money, paying tax on it, and then spending it on items such as cars, computers and so on, you choose the things you want, and make a salary packaging arrangement. This arrangement means you agree to substitute some of your cash salary for the ‘non-cash benefits’ you choose.
