Payroll & super
Salary sacrifice is an arrangement where an employee gives up part of their pre-tax salary in return for a benefit of similar value, most commonly extra superannuation. Sacrificed super is taxed at 15 per cent in the fund instead of the employee's marginal rate, which can be considerably higher.
A salary sacrifice arrangement must be prospective: the employee and employer agree, ideally in writing, before the income is earned. You cannot sacrifice salary, bonuses or leave that have already accrued. Once agreed, the employer redirects the sacrificed amount to the benefit (a super fund, a novated lease, or an FBT-exempt work item such as a laptop or tools of trade used primarily for work) and pays income tax withholding only on the reduced cash salary.
An important protection has applied since 1 January 2020: sacrificed super cannot reduce the employer's superannuation guarantee obligation. SG (12 per cent for 2025-26) must be calculated on the employee's ordinary time earnings before the sacrifice, and the sacrificed contributions do not count towards the employer's SG obligation. So an employee on $100,000 who sacrifices $10,000 still receives $12,000 of employer SG, plus their own $10,000 contribution. The ATO's overview of salary sacrificing super on ato.gov.au covers the requirements in detail.
Salary-sacrificed super is a concessional contribution, taxed at 15 per cent inside the fund rather than at the employee's marginal rate. The concessional contributions cap for 2025-26 is $30,000, and it includes employer SG as well as sacrificed amounts, so the room left for sacrificing is the cap minus SG. From 1 July 2026 the cap rises to $32,500. High earners should note Division 293: where income plus concessional contributions exceeds $250,000, an extra 15 per cent tax applies to the contributions above that line, halving (but not eliminating) the concession.
There is also a catch-up mechanism. If your total super balance was under $500,000 at the previous 30 June, you can carry forward unused concessional cap amounts from up to five earlier years and contribute above the annual cap in one go, useful after a strong year or an asset sale. Exceeding the cap is not a disaster but it is untidy: the excess is included in your assessable income, taxed at your marginal rate with a 15 per cent offset for the tax the fund already paid, and can be released from super. Current caps are listed on the ATO's key superannuation rates and thresholds page.
An employee earning $100,000 in 2025-26 agrees to sacrifice $10,000 into super. That slice of income sits in the 30 per cent bracket, plus the 2 per cent Medicare levy.
| Taken as salary | Salary sacrificed to super | |
|---|---|---|
| Tax on the $10,000 | $3,200 (30% + 2% Medicare) | $1,500 (15% contributions tax) |
| Amount kept or invested | $6,800 in hand | $8,500 in super |
| Annual tax saving | $1,700 | |
The trade-off is access: the $8,500 is preserved in super until a condition of release, usually retirement. The employee's SG is unaffected: the employer still pays 12 per cent on the full $100,000 ($12,000), and total concessional contributions of $22,000 sit comfortably under the $30,000 cap. Model different amounts, including the effect on take-home pay, with the OneBookPlus superannuation calculator and the OneBookPlus salary calculator.
For the employer, salary sacrifice is mostly a payroll configuration exercise, but the details matter. Sacrificed super must be reported through Single Touch Payroll as reportable employer super contributions (RESC), separate from SG, so it appears correctly on the employee's income statement. PAYG withholding is calculated on the reduced salary. Contributions should be paid to the fund promptly; note that from 1 July 2026 the payday super reforms require SG to be paid within days of each payday rather than quarterly, so payroll processes built around quarterly remittance need updating.
If the sacrificed benefit is something other than super, think FBT. Extra super attracts no FBT, and certain work items (portable electronic devices, protective clothing, tools of trade used primarily for work) are FBT-exempt, but benefits like gym memberships or school fees are fully taxable to the employer at 47 per cent on the grossed-up value, which usually erases the point of the exercise. Put the arrangement in writing, date it before the pay period it first applies to, and keep it with the employee's file. A one-page agreement protects both sides if the ATO ever asks whether the sacrifice was truly prospective.
The definitions above only get you so far; the free OneBookPlus superannuation guarantee calculator turns them into your own figures in seconds, no sign-up needed.
No. Since 1 January 2020, SG must be calculated on your ordinary time earnings before any sacrifice, and sacrificed amounts cannot count towards the employer's SG obligation. On a $100,000 salary with $10,000 sacrificed, the employer still owes 12 per cent of $100,000 for 2025-26.
No. An effective arrangement must be agreed before the income is earned. Sacrificing accrued salary, an already-declared bonus or existing leave balances is ineffective, and the ATO treats those amounts as ordinary taxable salary.
The excess is added to your assessable income and taxed at your marginal rate, with a 15 per cent offset for the tax already paid by the fund, and you can elect to release the excess from super. The cap is $30,000 for 2025-26, rising to $32,500 from 1 July 2026, and unused cap from up to five prior years can be carried forward if your total super balance is under $500,000.
Last reviewed and updated: by Bishal Shrestha