How Does Salary Sacrificing Work and What It Means for Your Minimum Wage

How Does Salary Sacrificing Work in Australia?

Salary sacrificing, also known as salary packaging, is a formal arrangement between an employer and employee where the employee agrees to forgo part of their salary or wages in return for benefits of a similar value. Common benefits include additional superannuation contributions, a car, or payment of expenses like school fees or childcare. The Australian Taxation Office outlines that for the arrangement to be effective, it must be entered into before the employee performs the work, be documented in writing, and ensure the employee cannot access the sacrificed salary .

Why This Matters for Your Pay Floor

Many workers wonder how salary sacrificing interacts with the minimum wage. The key point is that salary sacrificing does not reduce the minimum pay you are legally entitled to receive. The Fair Work Ombudsman explains that all employees in Australia are entitled to a minimum wage, which for most is set by the award covering their industry or occupation . The Fair Work Commission sets the national minimum wage, which 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 .

Even if you salary sacrifice part of your pay, your employer must still pay you at least the minimum wage in cash or a combination of cash and benefits that meet the legal minimum. The sacrificed amount cannot bring your total remuneration below the applicable minimum rate. For award-covered employees, the award rate (which may be higher than the national minimum) is the floor.

Different Pay Floors: Legal Minimum vs. Award vs. Negotiated Salary

It is important to separate the legal minimum from other concepts:

• Legal minimum: The national minimum wage or the minimum rate in your award or enterprise agreement. This is the lowest amount you can be paid for each hour worked.
• Award rate: Many industries have modern awards that set higher minimum rates, including penalty rates and allowances. The Fair Work Ombudsman’s Pay and Conditions Tool can help you find the correct award rate.
• Negotiated salary: Some employees negotiate a salary above the minimum. Salary sacrificing can be part of that negotiation, but it does not change the underlying minimum obligation.

Super Guarantee Is Paid on Top

When discussing pay, remember that superannuation is an employer payment on top of your salary. The super guarantee rate is 12% of your ordinary time earnings. Salary sacrificed super contributions are classified as employer contributions and do not reduce the base used to calculate the super guarantee. The Australian Taxation Office confirms that salary sacrificed super is additional to the compulsory super your employer must pay .

Special Cases: Juniors, Apprentices, and Award-Free Employees

Not every worker must receive $26.44 per hour. The national minimum wage applies to award-free adult employees. For juniors (under 21), apprentices, trainees, and employees with disability, different rates apply. For example, an award-free 16-year-old is entitled to $12.51 per hour (47.3% of the adult rate), and a casual loading of 25% applies. Award rates may include introductory rates that are lower than the national minimum for a limited period, but they cannot fall below $25.74 per hour or $978.10 per week (the award backstop from 1 July 2026).

If you are covered by an award or enterprise agreement, that document sets your minimum pay, which may be higher than the national minimum. Always check your specific instrument.

Common Misunderstandings

A frequent mix-up is thinking salary sacrificing reduces your minimum wage entitlement. It does not. Another is believing that salary sacrificing lowers the super guarantee base—again, no. The ATO is clear that salary sacrificed super is an employer contribution and does not affect ordinary time earnings for super purposes.

For more details on which pay floor applies to you, see our Rate tables and Guides. These resources explain how to find your correct minimum wage and how salary sacrificing fits into your overall remuneration package.

Summary

Salary sacrificing is a useful way to receive benefits in exchange for part of your salary, but it does not change the legal minimum wage you must be paid. Your employer must still meet the applicable minimum rate under the national minimum wage, award, or agreement, and pay the super guarantee on your ordinary time earnings. Always ensure any salary sacrifice arrangement is documented and entered into before the work is performed.