Positive Salary Packaging and the National Minimum Wage: Award Coverage vs Award-Free Rates

Understanding Positive Salary Packaging and Minimum Wage Floors

Positive salary packaging (also known as salary sacrifice) allows employees to receive certain benefits in exchange for a reduction in their pre-tax salary. This can be a tax-effective way to pay for items like cars, laptops, or superannuation. However, it's important to understand how this interacts with Australia's minimum wage system, especially when distinguishing between award-covered and award-free employment.

The National Minimum Wage Floor

The Fair Work Commission sets the national minimum wage each year. From 1 July 2026, the adult rate for award-free employees is $26.44 per hour, or $1,004.90 per week for a 38-hour week. Casual employees receive a loading of 25%, bringing the casual rate to $33.05 per hour. These rates are the legal minimum before any salary packaging arrangements.

Employers must also pay superannuation guarantee contributions of 12% on top of ordinary time earnings. This super is not part of the minimum wage but is an additional entitlement.

Award Coverage vs Award-Free

Most private sector employees are covered by a modern award or an enterprise agreement. Awards set minimum pay rates that are often higher than the national minimum. For example, the lowest ongoing classification in a modern award cannot be less than $26.44 per hour from 1 July 2026, but many awards have higher rates.

If you are award-free (no award or agreement applies), the national minimum wage is your floor. Junior employees, apprentices, and trainees may be paid less under specific rules.

Positive salary packaging can be used by both award-covered and award-free employees, but the base rate of pay (the cash wage before sacrifice) must never fall below the applicable minimum. For award-covered employees, the award rate is the minimum base rate. For award-free employees, the national minimum wage is the minimum.

How Positive Salary Packaging Works

In a positive salary packaging arrangement, you agree to forgo part of your salary in return for a benefit. The benefit is often exempt from fringe benefits tax (FBT) or has a concessional tax treatment. Common examples include salary packaging a car through a novated lease, packaging additional super contributions, or packaging electronic devices.

The key point is that the salary reduction cannot take your base rate below the minimum wage. So if you earn $30 per hour, you could sacrifice up to $3.56 per hour (the difference between $30 and $26.44) without breaching the minimum. However, you must also consider award rates if applicable.

Comparing with Survey Averages

The ABS May 2026 survey reported full-time adult ordinary-time earnings of $2,083.70 per week, and all employees average total earnings of $1,579.20 per week. These are much higher than the minimum wage. Positive salary packaging is more common among higher earners who can afford to sacrifice salary for tax benefits. For minimum wage earners, salary packaging may not be feasible because the base rate is already at the floor.

Award-Free Junior Rates

For award-free employees under 21, the national minimum wage is reduced by a percentage. For example, a 16-year-old receives 47.3% of the adult rate, which is $12.51 per hour ($15.64 casual). Positive salary packaging for juniors is limited because the base rate is already low. The same rule applies: the cash wage cannot fall below the junior minimum.

Introductory Rates for New Employees

Modern awards allow an introductory rate for the first 6 months of employment, set at $25.74 per hour from 1 July 2026. This is slightly below the ongoing minimum. Salary packaging cannot reduce the base rate below this introductory rate during that period.

Positive Salary Packaging and the Tax System

The tax benefits of positive salary packaging are most valuable for employees in higher tax brackets. For low-income earners, the benefit may be minimal. Additionally, the Medicare levy (2% for most) and the low-income tax offset can affect the net outcome. The ATO provides thresholds for the tax-free threshold and the low-income tax offset.

Important Considerations

• Superannuation: Salary packaging can reduce your ordinary time earnings, which may lower the super guarantee contribution. However, some salary packaging arrangements (like additional super contributions) actually increase your super.
• Award Rates: Always check your award. Some awards have specific clauses about salary sacrifice. If you are award-covered, the award rate is your minimum, not the national minimum.
• Enterprise Agreements: If you are covered by an enterprise agreement, it may set higher rates and include rules about salary packaging.
• Tax Advice: Salary packaging has tax implications. This guide is not tax advice. Consult a tax professional.

Internal Resources

For more information on which minimum wage applies to you, see our Which minimum wage applies guide. You can also explore our Rate tables for award rates and historical figures. For details on how the figures work, visit How the figures work.