What is salary sacrificing and how does it affect my tax?

Salary sacrificing (also called salary packaging) is an arrangement where you agree to forgo part of your pre-tax salary in exchange for benefits such as extra super contributions, a car, or childcare. Because your taxable income is reduced, you pay less income tax. However, your employer may need to pay fringe benefits tax (FBT) on some benefits, which can limit what is offered. The Australian Taxation Office requires the arrangement to be in place before you earn the income.

Can I salary sacrifice super contributions?

Yes, salary sacrificing into super is common. These contributions are treated as employer contributions and are taxed in the super fund at 15% instead of your marginal rate. They are not fringe benefits if paid to a complying super fund. However, they do not reduce your employer's super guarantee obligation – your employer must still pay the 12% super on your ordinary earnings. Salary-sacrificed super counts towards the concessional contributions cap ($32,500 for 2026–27).

How does salary packaging interact with the Medicare levy?

Salary packaging reduces your taxable income, which may lower your Medicare levy (generally 2% of taxable income) and could affect your entitlement to the Medicare levy reduction if your income is below certain thresholds. However, the Medicare levy surcharge (if applicable) is based on your income for surcharge purposes, which may include some reportable fringe benefits. It's best to check with the ATO or a tax professional for your situation.

From Hourly to Annual: Salary Sacrificing and Your Take-Home Pay

Assuming a 38-hour week, multiply your hourly rate by 38 then by 52 to get your annual gross pay before tax and super.

Converting Your Hourly Rate to Annual Pay

To estimate your annual gross pay, multiply your hourly rate by the number of hours you work each week, then by 52 weeks. This site assumes a standard full-time week of 38 hours, as defined by the Fair Work Commission. For example, if your hourly rate is $30, your annual gross would be $30 × 38 × 52 = $59,280.

This simple formula works for any hourly rate, but it assumes the same hours every week with no unpaid overtime, penalty rates, or allowances. If you work part-time or irregular hours, adjust the weekly hours accordingly. For a quick conversion, use the timesheet.

National Minimum Wage and Award Rates

From 1 July 2026, the National Minimum Wage is $26.44 per hour ($1,004.90 per week for 38 hours). Casual employees receive a 25% loading, making the minimum casual rate $33.05 per hour. Many awards set higher minimum rates, so check your industry award via pay guides.

Casual Loading

If you are a casual employee, your hourly rate typically includes a 25% loading to compensate for lack of paid leave. On this site, you can check a box to add 25% casual loading on top of your base hourly rate. Do not enter a rate that already includes loading – the tool adds it for you. See casual loading for more.

Understanding Tax on Your Annual Pay

Australia uses a progressive tax system for residents. For 2026–27, the tax-free threshold is $18,200. The rates are:

$0 – $18,200: Nil
$18,201 – $45,000: 15% on excess over $18,200
$45,001 – $135,000: 30% on excess over $45,000
$135,001 – $190,000: 37% on excess over $135,000
$190,001+: 45% on excess over $190,000

In addition, most residents pay a Medicare levy of 2% of taxable income. The levy may be reduced for low-income earners (thresholds not confirmed for 2026–27, so we use 2025–26 single thresholds).

Fortnightly Withholding

Employers use tax tables to withhold PAYG from each pay. For a fortnightly pay cycle, the ATO provides a fortnightly tax table. For example, an employee earning $2,000 per fortnight and claiming the tax-free threshold would have $42 withheld. The withholding amount increases with earnings and includes Medicare levy adjustments.

Super Guarantee: Paid on Top

Your employer must pay super guarantee contributions of 12% of your ordinary earnings (up to the maximum contribution base of $270,830 per year). This is paid on top of your salary, not deducted from it. So if your annual gross is $60,000, your employer adds $7,200 to your super fund.

Super is calculated on your ordinary time earnings – the same base used for salary sacrificing purposes. Salary-sacrificed super contributions do not reduce your employer's super guarantee obligation; they are additional.

Salary Sacrificing: Reduce Your Taxable Income

Salary sacrificing (also called salary packaging) lets you swap part of your pre-tax salary for benefits like extra super, a car, or childcare. Because your taxable income drops, you pay less income tax. However, your employer may have to pay fringe benefits tax (FBT) on some benefits, which can reduce the tax advantage. The Australian Taxation Office explains that an effective salary sacrifice arrangement must be agreed before you perform the work, and you cannot access the sacrificed salary.

Salary Sacrifice into Super

Putting pre-tax income into super is a popular option. Your super fund taxes these contributions at 15% (the same as employer contributions), which is often lower than your marginal tax rate. These are called 'concessional contributions' and count towards the annual cap of $32,500 (2026–27). Any excess is taxed at your marginal rate plus an excess charge.

Other Benefits

You can salary package almost any benefit your employer offers, such as a car, laptop, or school fees. But FBT applies to most fringe benefits, so your employer may limit options. Work-related items like laptops are no longer exempt from FBT when salary sacrificed. Always check with your employer and a tax adviser.

Take-Home Pay Estimate

This site estimates your annual gross, tax, Medicare, and super. It does not account for salary sacrificing, HELP repayments, or the Medicare levy surcharge. For a personalised estimate including salary packaging, see super and packaging.

Disclaimer

Annual pay is calculated as hourly rate × hours per week × 52. It assumes the same rate every week, no unpaid overtime, no penalty rates, no allowances, and no salary sacrifice. Super is estimated at 12% of ordinary earnings only, paid on top, and stops at the $270,830 maximum contribution base. Tax uses the 2026–27 resident scale with the full tax-free threshold. Medicare uses the 2025–26 single reduction thresholds because the 2026–27 reduction thresholds were not confirmed here. HELP, the Medicare levy surcharge, and salary packaging are not deducted. This is an estimate, not a determination of your pay or tax.

For more details, visit take-home pay or average pay.