How Does Salary Packaging Work? Understanding Your Pay Floor and Tax Benefits

How Does Salary Packaging Work? Understanding Your Pay Floor and Tax Benefits

When you ask "how does salary packaging work", you're likely wondering how it affects your pay floor and how your packaged salary compares to the legal minimum. This guide explains the legal minimum, survey averages, award rates, and negotiated salaries, and explains how salary packaging interacts with these figures.

The Legal Minimum and Salary Packaging

The Fair Work Commission sets the national minimum wage from 1 July 2026: $26.44 per hour, $1,004.90 per week. For award-free adult employees, the minimum is $26.44 per hour or $1,004.90 per week. Casual employees receive $33.05 per hour. This floor cannot be undercut by salary packaging. The employer must ensure that the cash component of your salary remains at or above the minimum. The Fair Work Ombudsman enforces this requirement.

How Salary Packaging Affects Your Pay

Salary packaging allows you to sacrifice part of your salary for non-cash benefits (e.g., car, laptop, super contributions). This reduces your taxable income, but it does not reduce the minimum wage obligation. The employer must still pay at least the minimum wage in cash. If you salary package, the cash component must be at least $26.44 per hour or the applicable award rate if higher.

Super Guarantee on Top

The employer must pay super guarantee 12% on top of ordinary time earnings. This is calculated on your salary before sacrifice. Salary packaging into super is an additional contribution, but it does not replace the employer's 12% obligation. The super guarantee is on top of the ordinary time earnings.

Award Rates and Negotiated Salaries

A modern award or enterprise agreement can require a higher rate than the national minimum. If you are covered by an award, your minimum is set by that award. Salary packaging must not reduce the cash wage below the award rate. The award backstop from 1 July 2026: ongoing $26.44 per hour or $1,004.90 per week. Introductory rate limited to first 6 months: $25.74 per hour or $978.10 per week.

Survey Averages

The ABS May 2026 full-time adult ordinary-time earnings $2,083.70 per week; all employees average total earnings $1,579.20 per week. These are survey averages, not the minimum. Salary packaging can affect your net pay, but it does not change the minimum.

Tax and Medicare

For tax year 2026-27, resident rates with full tax-free threshold. Medicare is estimated at 2% once annualised ordinary gross reaches $30,000. Salary packaging reduces taxable income, but it does not affect Medicare levy. The low-income reduction uses ATO shade-in thresholds. This model leaves out low income tax offset, HELP, salary sacrifice, and Medicare levy surcharge.

Internal Links

For more information, see Which minimum wage applies and Rate tables for detailed rates.

For the published floors, see the rate tables and how the figures work.