How Does Salary Sacrificing Work? A Guide for Hourly and Salaried Workers
For a full-time employee working 38 hours per week, annual gross pay is hourly rate × 38 × 52, with super paid on top.
How Does Salary Sacrificing Work? Understanding the Basics
When you're comparing an hourly rate to an annual salary, it's important to know how salary sacrificing can change your take-home pay. Salary sacrificing (also called salary packaging) is a formal arrangement where you agree to receive less pre-tax income in exchange for benefits of similar value, such as a car, extra super contributions, or a phone. This reduces your taxable income, meaning you may pay less income tax. However, your employer may have to pay fringe benefits tax (FBT) on certain benefits, which can affect the overall value of the arrangement.
According to the Australian Taxation Office, an effective salary sacrifice arrangement must be entered into before you perform the work, be documented (usually in writing), and ensure you cannot access the sacrificed salary. If these conditions are not met, the benefits are treated as assessable income.
How the Hourly-to-Annual Conversion Works
Our calculator uses the standard formula: annual gross pay = hourly rate × hours per week × 52. For full-time employees, we assume a 38-hour week, as this is the ordinary hours for many awards under the Fair Work system. For example, at the National Minimum Wage of $26.44 per hour (from 1 July 2026), a 38-hour week gives:
- Weekly pay: $26.44 × 38 = $1,004.72
- Fortnightly pay: $1,004.72 × 2 = $2,009.44
- Annual gross: $1,004.72 × 52 = $52,245.44
If you are a casual employee, you are entitled to a 25% casual loading on top of the base rate. Our calculator includes a checkbox to add this loading automatically. Do not enter a rate that already includes casual loading – let the calculator add it for you.
Distinguishing Minimum Wage, Award Rates, and Casual Loading
The National Minimum Wage applies to employees not covered by an award or registered agreement. Many industries have award rates that are higher. The Fair Work Ombudsman sets these rates, and they vary by classification and experience. Casual loading (25%) is paid instead of entitlements like paid leave. Superannuation is paid on top of your ordinary earnings at 12% (from 1 July 2026) up to the maximum contribution base of $270,830.
How Does Salary Sacrificing Work in Practice?
Let's look at an example from the ATO. Suppose Sam earns $65,000 annually and salary sacrifices a car worth $17,353. Without salary sacrifice, Sam's taxable income is $65,000, and after tax and Medicare, net disposable income is about $41,912. With the car sacrifice, taxable income drops to $47,647, but Sam must pay car expenses of $11,500 out of pocket, resulting in net disposable income of $41,612 – slightly less. However, if Sam makes an employee contribution of $7,000 to reduce the FBT, net disposable income rises to $43,593. This shows that salary sacrificing can be beneficial, but the outcome depends on the type of benefit and any employee contributions.
For superannuation, salary-sacrificed contributions are treated as employer contributions and are not subject to FBT if paid to a complying super fund. They are additional to the super guarantee. The Moneysmart website notes that salary packaging is usually more effective for people on middle to high incomes because their marginal tax rate is higher.
Impact on Tax and Government Benefits
Salary sacrificing reduces your taxable income, which can lower your income tax and Medicare levy. However, it may affect other areas:
- The Medicare levy surcharge (if you don't have appropriate private hospital cover)
- Study and training support loan compulsory repayments
- Some tax offsets
- Child support payments
- Government benefits such as Family Tax Benefit
Our calculator does not account for these adjustments. It uses the 2026–27 resident tax rates: nil up to $18,200; 15% from $18,201 to $45,000; 30% to $135,000; 37% to $190,000; and 45% above that. Medicare levy is estimated at 2% using the 2025–26 single reduction thresholds, as the 2026–27 thresholds were not confirmed at the time of this guide.
Superannuation and Salary Sacrifice
Super guarantee is 12% of ordinary earnings, paid on top of your salary. For example, if your annual gross is $65,000, your employer must contribute $7,800 to super (12% of $65,000). If you salary sacrifice an additional $10,000 into super, that amount is also taxed at 15% within the fund (up to the concessional cap of $32,500 for 2026–27). Salary-sacrificed super does not reduce the super guarantee your employer must pay.
Fortnightly Pay and Budgeting
Many employees are paid fortnightly. To find your fortnightly gross pay, multiply your weekly pay by 2. For a full-time worker on $30 per hour:
- Weekly: $30 × 38 = $1,140
- Fortnightly: $1,140 × 2 = $2,280
- Annual: $1,140 × 52 = $59,280
After tax and Medicare, your take-home pay will be lower. Use our take-home pay calculator for a more detailed estimate.
Important Disclaimer
This article is a guide only. The annual pay shown is an estimate based on hourly rate × hours per week × 52, assuming the same rate every week with no unpaid overtime, penalty rates, allowances, or salary sacrifice. Super is estimated at 12% of ordinary earnings, paid on top, and stops at the $270,830 maximum contribution base. Tax uses the 2026–27 resident scale with the full tax-free threshold. Medicare uses the 2025–26 single reduction thresholds. HELP, the Medicare levy surcharge, and salary packaging are not deducted. For personalised advice, consult a qualified tax professional.
For more information, see our super and packaging page or explore pay guides for award rates.
Open the same rate on the home timesheet. Read the reference tables before treating a figure as your pay.