In a decision of Fair Work Australia, Vice President Lawler confirmed that employees are able to set up a salary sacrifice arrangement that takes their net pay below the award rate.Â (Casey Grammar School v Independent Education Union of Australia, 25 October 2010. PR503051.)
This had been a contentious issue for quite some time and this was the first time Fair Work Australia has ruled on it. The effect of the decision was to validate arrangements, made by employees with their employer, to salary sacrifice an amount into superannuation that could take their net pay below the award rate.
Example: A tradesman being paid $900 per week wants to salary sacrifice $300 per week into his superannuation fund. This would leave him with a net payment before tax of $600 – while the award rate for a tradesman is currently $764.90.
The case quoted above indicates such an arrangement is valid under the Fair Work legislation. In this example, the tradesman would be taxed by his employer on the $600, and the employer would remit the full $300 directly to the employee’s superannuation fund along with the normal Superannuation Guarantee payment. (The superannuation fund is, of course, still required to deduct 15% contributions tax from all such amounts paid into the fund.) This arrangement is advantageous for the tradesman, even allowing for the contributions tax deducted by the superannuation fund, as he is only taxed by his employer on $600 rather than $900. Such an arrangement would have to be confirmed in writing and could only apply to future earnings. The parties need to clarify that the salary sacrificed amount will not take the place of the employer’s obligation to pay 9.5% superannuation on the full gross amount of $900 and that annual leave, sick leave and long service leave accruals will still be paid at the full gross amount of $900/wk. By agreeing to this, the employer encourages the employee to take responsibility for his retirement – and without any direct cost to the employer.