What is salary sacrifice?
Salary sacrifice is a technical term which means that an employee gives up the right to receive part of the cash pay (salary) due under his or her contract of employment and receive some other benefit e.g. pension. In this case, salary sacrifice can be made in return for the employer’s agreement to provide the employee with childcare vouchers. The “sacrifice” is achieved by the employee making an agreement to vary their terms and conditions of employment relating to pay.
Salary sacrifice can be a tax-effective way to boost your retirement savings. It involves giving up or sacrificing a portion of your take home salary and contributing this amount directly into your superannuation account. Salary sacrifice contributions are deducted from your pre-tax salary by your employer and forwarded to your superannuation fund with your employer contributions. They are subject to a contributions tax of 15% and are not taxed at the same rate as your salary. People who earn over $58,000 per annum tend to benefit more from salary sacrifice contributions because of the lower tax rate. If you earn less than $55,000, then you may be better off making a voluntary contribution because the extra tax paid may be offset by the Government’s Co-contribution. Speak to your employer to determine your eligibility for pre-tax salary sacrifice contributions to be made directly to your superannuation account.
Salary sacrifice means that you give up some of your cash pay and receive instead childcare voucher benefit to the same value. By receiving some of your remuneration in childcare vouchers this means that you are able to save money on your childcare costs. This works because the government do not charge you Tax or National Insurance on childcare vouchers of up to 55 per week or 243 per month. Technically this is a change to terms and conditions of employment.
