It may seem obvious how salary payments work.
But there are options that could offer workers additional benefits, according to Mike Daly, customer education specialist at salary packaging provider Smart. Through salary packaging — also known as salary sacrificing — employees can exchange a certain amount of their salary for goods like insurance, vehicles, or superannuation, which could then lower their tax owed.
Azzet spoke with Daly to discuss the benefits employees could see from salary packaging, its growing recognition in Australia, and what Smart brings to the salary packaging world.
What is salary packaging?
“Salary packaging is a way for you to reduce the amount of tax that you pay by using pre-tax income to pay for some everyday living expenses,” Daly tells Azzet.
Benefits can include health insurance, electronic devices, mortgages, and contributions to superannuation funds.
The most common benefits to receive when salary packaging are mortgage assistance, rent, and meals or entertainment, according to data compiled by Smart. Offerings typically depend on an employee’s industry, however.
“Some of our customers are saving in excess of $10,000 a year on taxable income,” according to Daly.
Salary packaging arrangements can also include novated leases, allowing employees to sacrifice a portion of their taxable income in exchange for a vehicle. This is “by far the most popular benefit” for those not working at non-profit organisations, Daly says.
Electric cars bought under a novated lease have been exempt from fringe benefits tax since 2022 in Australia, if the vehicle’s value is below the luxury car tax threshold of $91,387. While plug-in hybrids have previously also been eligible for an exemption, this will expire for new novated leases on 31 March.
Fuel expenses can additionally be covered under a salary packaging arrangement, as well as vehicle maintenance and registration.
By offering benefits through salary packaging, companies can help to attract or retain employees and lower the cost of recruitment, Smart has said.
These salary packaging arrangements are only valid for wages and bonuses earned after entering the agreement, and employees are not able to access the salary they have sacrificed, apart from using the benefits they receive.
Why haven’t I heard of this before?
In 2019, 84.1% of Australians surveyed did not use a salary packaging arrangement, according to a Household, Income and Labour Dynamics in Australia report.
The report found that older Australians were more likely to have made use of salary packaging, as well as high-income employees, union members, and workers with longer tenures.
While salary packaging arrangements are available in many industries, certain sectors are also more likely to see employees use salary packaging. Workers in the healthcare and non-profit industries are among the top professions to do so, with non-profit organisations often having around 60-70% of their employees on a salary packaging agreement.
Non-profit workers are also frequently offered benefits like grocery expenses, rent, credit card repayments, and entertainment allowances, with salary packages up to $15,900 each year.
According to data provided by Smart, the corporate sector has also seen rapid growth in salary packaging adoption recently.
“There's a couple of theories” as to why salary packaging remains relatively uncommon, Daly says. “We're in a really interesting time at the moment where there are so many scams going around, that people can look suspiciously on what we do. When we're telling people that they can save thousands of dollars in tax, sometimes it can seem too good to be true.”
“However, this is one of those times when it is a genuine benefit that people can take advantage of now,” he says.
What does Smart do?
Smart, a salary packaging provider, currently operates salary packaging arrangements for more than 490,000 Australians. More than 541,000 customers used Smart’s salary packaging services in 2024, with its number of active customers in December increasing by 49,000 over the previous year.
Founded in 1999 as an online salary comparison tool, the company began providing vehicle lease brokering in 2004, and listed on the Australian Securities Exchange in 2014.
Around 60,000 cars are now being driven with Smart’s novated leases, according to the company, which also offers fleet management services.
Its novated leasing settlements grew by 20% across 2024, with electric vehicles and plug-in hybrids representing 44% of new car lease orders that year.
“We communicate with payroll directly, and ask them to send us the money out of your pay pre-tax. And then we distribute it as has been agreed, either as a direct reimbursement to our customer or maybe to pay for an expense directly,” according to Daly. “We're employed by — or we're contracted to — the employer, to take the hassle off of the employer's hands."
“It just makes it super easy for the employee, because we are a one-stop shop that can get everything done for them.”
