Salary sacrifice, or salary packaging, is a voluntary arrangement between you and your employee which allows the employee to pay for some items or services straight from their pre-tax salary, such as motor vehicles, laptops, tablets and superannuation.
This means your employee pays less tax and has more cash in his/her pocket. It’s both a financial and morale boost for them.
By strategically combining a cash salary as well as offering salary sacrifice options, it gives you the employer greater flexibility in negotiating staff remuneration.
Salary sacrifice is a terrific tool for attracting and retaining talent – and it’s particularly appealing to employees on mid to high incomes.
You might think that introducing salary sacrifice is too difficult…..
You may be concerned about your FBT liability, and having to report certain benefits on your employee’s payment summary. You might also be concerned that there will be a huge effort required to implement salary packaging, and administer it as well.
That does not need to be the case. This is where we can help you; by removing all the road-blocks to implementation.
In fact, the advantage of a successful package is that it may actually lower your salary on-costs, and provide greater transparency in remuneration. A strong (and possibly outsourced) salary packaging program can even increase efficiency when it comes to those annoying FBT returns.
Your organisation can potentially save money if the program is arranged correctly. And your employees effectively get a pay rise at no cost to you. A win-win for everybody.
There are a couple of things you will need to consider…..
You need to carefully consider the type of salary sacrificing benefit that is most suitable to your organisation.
Structuring the package in a way that is cost-effective for the business and financially appealing for employees is vital. It is also important to choose options that are actually useful and relevant to employees if you would like them to participate in the program.
There are very few limits on what can be salary sacrificed but potential FBT implications can impact the type of items that you may be prepared to offer staff. The most common salary sacrificed items are cars – but the scope of salary sacrifice goes far beyond that.
Here are some examples of things you could consider offering your staff……
Motor cars may be subject to FBT depending on whether there are employee contributions or not, and there are also concessional rates according to the level of private versus business use. If an employee elects to take out a novated lease agreement and leaves the organisation, you don’t have to worry because the lease goes with them.
Salary sacrificing superannuation is a very popular strategy. The great benefit of super salary sacrifice is that it isn’t subject to FBT. You as the employer will only continue to pay the normal superannuation contribution.
Portable electronic devices:
Devices such as a laptop computer, tablet, or mobile phone are free from FBT, making them ideal for your staff to buy via salary sacrifice. However, to obtain the FBT exemption the devices must be used primarily for work.
Tools of the trade:
Many employees buy their work tools using salary sacrifice. That doesn’t just mean tools for tradies – it can include other work-related essentials such as a briefcase, a musical instrument, sheet music etc. Tools are free from FBT, and it’s a good way to maximise the benefit of salary sacrifice.
Other third party payments:
Examples include airline lounge memberships, childcare fees, school fees, health insurance, mortgage repayments and other personal expenses. These are less common but still possible, but you must remember that they may have FBT, GST and tax credit implications.
And finally, it’s really important to take advice before rushing into offering salary sacrifice. Get help in considering the options and crunch the numbers to ensure it is the right move for your business.
When we work with our clients we review their particular situation to ensure they are getting the benefits they are eligible for, and those that will support their lifestyle.
We’d be delighted to help you with a complimentary 30 minute phone session. Be strategic with your creative industry business and give us a call now.