As an employer, it is important to offer your employees the best options possible, as to attract and retain talents. One way to achieve this is through salary packaging or salary sacrifice, which are used interchangeably. What this term means is between the employer and employee, there is an agreement to use pre-tax dollars for a certain list of services or items. The benefit for the employee is this will decrease their taxable income, while purchasing items or services such as automobiles or childcare. Each of the topics we’ll be going over affect both the employer and the employee. They all have their own unique benefits and one may be better suited over another. However, it is important to know all options to better suit both parties.
Fringe Benefits Tax (FBT)
First, as an employer offering the option to use salary packing to your employees, you will have to navigate fringe benefits tax. Different from income tax, the fringe benefits tax is calculated on the value of the fringe benefit being provided to the individual by employer. This has implications because the tax rate will likely vary between the two tax levels of value and income.
Offering fringe benefits is a wonderful way to help attract and sustain a quality employee base. Using pre-tax dollars motivates the employee because not only does it use the pre-tax dollar but it again, lowers their taxable income paying for things they would need to pay for regardless.
We already touched on a few of the items this benefit may be used on and that includes automobiles, insurance, loans or low interest loans, childcare and school costs, as well as other personal expenses.
Exempt Benefits
Beyond the fringe benefits, there are exempt benefits that benefit the employer because the fringe benefits tax does not apply to these items. Different from the fringe benefits, the list of items that are exempt include items needed to complete your job, clothing, any electronics or software, and carrying cases such as backpacks or laptop cases.
Salary Sacrifice Super
Another way to utilize the salary sacrifice is to take the funds used as pre-tax income and put them into super. The goal here is to provide benefits to both the employee and employer. When redirecting funds into the super fund, the tax rate of 15% will likely be less than your current tax rate, saving both parties money. Deciding the best fit may take time but again, it will allow employers to retain valuable employee by offering the costs saving benefits.
Non-Profit and Charities
For those operating a non-profit and charity, the salary packing may offer some of the greatest benefits. These entities are exempt from the tax on fringe benefits up to the dollar amounts stated in the beginning paragraph. Non-profits and charities are the businesses most sensitive to taxes due to the nature of business. Retaining employees for charities and non-profits are just as important as a for-profit business.
One item to keep in mind is you are unable to take items that have been debited out of your bank account and claim them as salary sacrifice. Also, beyond the expenses mentioned above, check with your employer, as you may be surprised to find what other uncommon expenses are eligible for salary sacrifice.
Understanding the details of salary packaging can be difficult if you are just starting out. The purpose of this article is not to provide advice, but to raise awareness about thing you can do to improve your business. If you need help, Prebookr.com connect you to professionals who are dedicated to helping businesses implement these benefits.
