Pay day arrives and by the time your rent and bills get allocated, it sometimes feels like you’re not getting anywhere fast. According to research only 16% of Australians could afford to last a week if they were to lose their jobs. If you are living from week to week, you may be wondering how to make your wages go further and minimise the amount of tax you need to pay. The answering you’re looking for could come in the form of salary sacrificing.
Many people associate salary sacrificing with superannuation, like the two go hand in hand, but did you know there are several options that provide the potential to make your salary or wages go further? Your options may be impacted by the industry you work in. For example, if you are in the medical or education fields, your employer may agree to a salary package that can cover car payments, paying back HECs debts, further education, or even your accommodation.
Due to the global pandemic with wages expected to remain stagnant, it may be a good idea to ask your employer if they have salary sacrificing packages available. In some circles, these may be known as total remuneration packages—the two parties have a formal agreement, where the employee agrees to receive a lesser amount of wages each week in exchange for the employer making car repayments or paying accommodation.
It can be hard to wrap your mind around why you’d want to sacrifice your wages, but the benefits come in the form of less tax.
Let’s take a look at an example of how salary sacrificing would work in the real world. Lynsey is a fitness trainer for a gym and gets a gross amount of $1,000. She pays 30% tax which means she gets $700 in the hand and the ATO keeps $300 in tax. Lynsey is training to become a certified Zumba trainer and has to pay for her course which costs her $200 a month. This leaves her with $500 to pay all her other incidentals such as accommodation, food, electricity and phone. But if Lynsey had a salary sacrifice arrangement with her employer her financials could look a little like this:
The gross amount of wages in a month is $1000. Her salary sacrifice is set at an agreed $200 to cover the cost of her becoming a Zumba trainer. $800 minus 30% tax ($240) which leaves her $560 dollars to pay her accommodation, food, electricity and phone. So, ultimately Lynsey is $60 better off.
Before you decide to enquire about salary sacrificing, there are a few things you need to keep in mind to make it worth your while.
The agreement needs to be finalised prior to commencing the job and agreeing to a salary or wages and any bonuses, meal allowances etc.
The contract should in writing, but in some cases there may be some verbal agreements
You are not allowed to access the sacrificed portion of your wages during the agreed period. For example if you have agreed to car payments, a month or two later, you can’t decide that you want your mobile phone bill paid for or the money to be paid into your superannuation instead.
If you would like help to maximise your wages and learn how to structure the best salary sacrificing package and pitch it to your employer, talk to our tax accountants about the best way to go about it. In today’s unprecedented times, everyone could use some tips on how to make their wages go further.