Maximising Your Salary
Are you frustrated by the difference between the gross pay you earn and the net pay you actually receive?
Salary packaging could be the answer.
By using salary packaging you may, for example, be able to use your pre-tax salary to pay for your children’s education, make personal contributions to super, and pay your insurance premiums.
Salary packaging can be a tax-effective way of getting more out of your pay – in effect increasing the value of your salary.
Some people think that salary packaging is only for high-income earners.
This is not true. You don’t need to earn a six-figure salary to benefit from salary packaging. In fact, flexibility is one of its greatest appeals – dependent on your employer, it can be tailored to your current situation and your future goals.
What is Salary Packaging?
Salary packaging is also referred to as ‘salary sacrificing’ or flexible remuneration planning’.
In essence, salary packaging allows you to structure your existing salary into a combination of take-home pay and a mix of approved benefit-items. Your employer still pays you the same amount, but by remodelling your salary package, you gain greater benefits from your salary.
For example, your salary package could include a car lease. Your employer would pay the lease on your behalf using your pre-tax salary. However, as you are now receiving less cash, you pay less PAYE income tax.
Benefits of Salary Packaging
Salary packaging offers many significant advantages to both employers and employees.
Benefits to employees include:
- the potential to achieve substantial legitimate taxation savings;
- the reduction or removal of liabilities such as the Superannuation and Medicare Surcharge levies:
- the flexibility to choose a remuneration structure based on your individual needs and preferences; and
- the integration of personal financial planning and salary packaging.
Salary packaging is gaining popularity with employers who recognise the potential to attract, recruit and retain high-quality staff. For the same employment cost, employers are often able to offer a higher net benefit to staff than organisations that offer a more traditional salary approach.
Benefits to employers include:
- reduction in employment costs such as Payroll Tax and Worker’s Compensation;
- a more competitive remuneration, assisting in attracting and retaining the best staff
- allows the design of a more efficient incentive program;
- allows employees to alter their salary package to accommodate change, without incurring additional or unnecessary costs; and
- more effective control of remuneration costs.