Salary Sacrifice NSW: How It Affects Your Minimum Wage and Payroll Tax

Salary sacrifice in NSW and the minimum wage

Salary sacrifice is an arrangement where an employee agrees to forego part of their salary in exchange for a non-cash benefit, such as additional superannuation contributions, a car, or school fees. In NSW, these arrangements are common, but they can create confusion about which pay floor applies and how the arrangement is treated for payroll tax and superannuation.

The key point is that salary sacrifice cannot reduce your pay below the legal minimum. The national minimum wage from 1 July 2026 is $26.44 per hour or $1,004.90 per week for adult employees not covered by an award or agreement. If you are covered by a modern award, your minimum pay rate is set by that award, which may be higher than the national minimum. For example, some awards have introductory rates as low as $25.74 per hour for the first six months, but after that the full award rate applies. Always check your award or enterprise agreement, as it can set a higher minimum.

How salary sacrifice interacts with the minimum wage

When you enter into a salary sacrifice arrangement, your employer must still pay you at least the minimum wage for the work you perform. The sacrificed amount is not a deduction from your pay; rather, you are redirecting part of your pre-tax or after-tax salary to a benefit. Your gross salary (before sacrifice) must be at least the minimum wage. If your salary after sacrifice would fall below the minimum, the arrangement is not valid.

For award-free junior employees, lower minimum rates apply based on age. For example, a 17-year-old award-free employee has a minimum of $15.29 per hour. Salary sacrifice cannot reduce that further.

Payroll tax treatment in NSW

Revenue NSW provides clear guidance on how salary sacrifice is declared for payroll tax. The treatment depends on whether the sacrifice is pre-tax or after-tax.

• Pre-tax salary sacrifice: The employee pays income tax on the reduced salary. The sacrificed amount is treated as either an employer superannuation contribution (if directed to super) or a fringe benefit (if for other benefits). For payroll tax, the employer must include the reduced salary in the "Salaries and wages" field, the sacrificed super in "Employer superannuation contributions", and the taxable value of other benefits (grossed up) in "Fringe benefits". The total liable wages equal the original salary.
• After-tax salary sacrifice: The employee pays income tax on the full salary, then directs a portion to a benefit. This does not affect payroll tax – the full salary remains in "Salaries and wages".

Common errors include confusing pre-tax and after-tax arrangements and omitting sacrificed super from payroll tax returns. For more details, see our Guides on payroll tax compliance.

Superannuation guarantee and salary sacrifice

The super guarantee is 12% of an employee's ordinary time earnings (OTE). Salary sacrificed amounts are generally included in OTE, so your employer must pay super on the full amount you would have earned before sacrifice. For example, if you sacrifice $10,000 of a $130,000 salary to super, your employer still pays 12% on $130,000, not $120,000. This is because the sacrificed amount is still considered earnings for super purposes.

Award rates vs national minimum wage

It is important to distinguish between the national minimum wage (set by the Fair Work Commission) and award rates. The national minimum wage applies to award-free employees. Most employees are covered by a modern award, which sets minimum pay rates that are often higher. For example, the General Retail Industry Award may have a higher base rate than the national minimum. Always check your award using the Fair Work Ombudsman's Pay and Conditions Tool.

Salary sacrifice does not change which pay floor applies. Your employer must pay at least the award or national minimum wage, regardless of any sacrifice arrangement.

How salary sacrifice compares with average earnings

The legal minimum is separate from what people actually earn. According to the Australian Bureau of Statistics, in May 2026 full-time adult ordinary-time earnings averaged $2,083.70 per week, and all employees averaged $1,579.20 per week. Salary sacrifice is more common among higher earners, but the legal floor remains the same for everyone. A salary sacrifice arrangement does not alter the minimum wage obligation.

Common misconceptions

One common mix-up is thinking that salary sacrifice reduces the amount that counts for payroll tax or super. As explained, for pre-tax sacrifices, the full original salary is still liable for payroll tax, and super is calculated on OTE including sacrificed amounts. Another misconception is that salary sacrifice can be used to reduce the minimum wage obligation – it cannot.

For a broader overview of how different pay rates compare, visit our Topics page.