Salary packaging is an arrangement often made between an employer and employee where the employee agrees to forgo part of their salary or wages which their employer then uses to provide them with benefits, such as private health insurance.
The average weekly salary sacrifice in 2012 was $45, according to a May 2013 release from the Australian Bureau of Statistics (ABS).
Superannuation is by far the most popular salary benefit, with 44.5 per cent of all salary sacrificed among Australian workers going towards superannuation payments.
Private health insurance is another common salary packaging choice, allowing Australian workers to cover themselves and their family via an untaxed portion of their wage.
This system is beneficial for both the employee and the employer for a number of reasons.
For the employee, salary packaging allows untaxed income to be used to pay for these benefits, which can ultimately lead to paying less income tax each financial year.
Individuals who obtain health insurance cover through this method may still be eligible to collect their Private Health Insurance Rebate at the end of the financial year. However, salary packaging can affect the amount of rebate available to the employee.
The employer may benefit from salary packaging due to potential reductions in the required superannuation contributions and workers’ compensation tax.
Additionally, salary packaging has been associated with improved staff attraction and retention as employees are more likely to want to work for a company that offers this benefit.
Salary sacrificing also reduces the administrative burden and frees up cash flow for both the employer and the employee.
Whether you are an individual investigating your packaging options or an employer planning to offer salary sacrificing, it pays to complete a thorough private health insurance comparison to make the sure the cover you receive is the most suitable on the market.
DT: Obtaining private health insurance as part of a salary package can be beneficial to both employers and employees.