Salary Sacrifice Scheme – What Is It?

People certainly work for money. They work so they can have the financial means to get the things they both need and want. Perhaps you have heard about a salary sacrifice scheme; but do you know what it is? And why would someone sacrifice his/her salary if there are a lot of financial responsibilities to deal with?

Facts About The Salary Sacrifice Arrangement

The salary sacrifice arrangement is also knows as total remuneration packaging. It is not as simple as you think it is wherein you are just going to give up your salary for nothing in return. This is an agreement between an employer and an employee where the latter agrees to sacrifice a part of his/her salary in exchange for some non-cash benefits having the same value. Such arrangement is often settled before work is performed. Most importantly, it is most efficient with a contract. Employees usually negotiate such arrangement based on their requirements. Also, the contract is drawn up according to the results of the said negotiation.

Prior to deciding to enter into this arrangement, there are several important things to consider. First, your employer might be required to report various benefits on your payment summary. Second, you still have to pay your income tax even so it can be very challenging for you to budget the money you bring home. Third, your employer might be liable to pay FBT on the non-cash benefits you will receive. Fourth, reduced wages can affect your contribution-based state benefits. Lastly, salary sacrificed superannuation contributions are regarded as employer superannuation contributions rather than employee contributions. Hence, they will be taxed in the superannuation fund that is under tax laws.

Benefits Of Salary Sacrifice Arrangements

Exempt Benefits – These are work-related items like tools of the trade, protective clothing, electronic devices, and computer software.

Fringe Benefits – These will include expense payment for school fees, child care costs and school, cars, and properties like shares or bonds, goods, and real estate.

Superannuation – Under an efficient salary sacrifice arrangement, this benefit will have 2 conditions. First, it will not be considered as a fringe benefit if paid for an employee. Second, superannuation contributions that are made for the benefit of an associate will be considered fringe benefits.

When it comes to dealing with salary sacrifice scheme, there are indeed a lot of components to consider. Hence, you must study it thoroughly so you will know if it is really something that you want to engage into. Determine if it can help you better manage your finances and your life. It would be a smart idea for you to consult an adviser and obtain the right education about such provision.

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