How to Salary Sacrifice a Car: Understanding Your Pay and the Minimum Wage

How to Salary Sacrifice a Car and the Minimum Wage

If you're wondering how to salary sacrifice a car, it's important to first understand the pay floor that applies to your employment. The national minimum wage and modern awards set the minimum rates you must receive in cash, before any salary sacrifice arrangements. This guide explains the legal minimums, how they compare with other pay rates, and what salary sacrifice means for your weekly packet including tax, Medicare, and super.

The National Minimum Wage

The Fair Work Commission sets the national minimum wage each year. From 1 July 2026, the adult national minimum wage is $26.44 per hour or $1,004.90 per week for a 38-hour ordinary week. Casual employees receive a loading of 25%, making the casual minimum $33.05 per hour. These figures apply to award-free and agreement-free national-system employees. Most private-sector employees are in the national system, but some state public sector and local government employees may be covered by state awards instead.

It's a common misconception that every worker must receive $26.44 per hour. In reality, juniors, apprentices, trainees, and employees on introductory award rates may be paid less. For award-free juniors, the percentages range from 36.8% for under 16 ($9.73 per hour) up to 97.7% for 20-year-olds ($25.84 per hour). Apprentice and trainee rates follow the Miscellaneous Award, not the junior percentages. Always check your specific award or agreement.

Award Rates and Agreements

A modern award or enterprise agreement can require a higher rate than the national minimum. The award backstop from 1 July 2026 is $26.44 per hour or $1,004.90 per week for ongoing employees, with an introductory rate of $25.74 per hour or $978.10 per week for the first six months. Modern award minimum wages rose by 4.75% from that date, but the lowest ongoing classification cannot sit under the national minimum. If you are covered by an award, your minimum wage is likely higher than the national minimum. Enterprise agreements may also set higher rates.

Salary Sacrifice and Your Pay Packet

Salary sacrifice is an arrangement where you agree to forgo part of your pre-tax salary in exchange for a benefit, such as a car. It reduces your taxable income, which can lower the amount of tax you pay. However, it does not change the minimum wage your employer must pay you in cash. The legal floor remains the national minimum wage or your award rate, whichever is higher. Salary sacrifice is voluntary and must be agreed between you and your employer. It cannot be used to reduce your cash pay below the minimum.

When considering how to salary sacrifice a car, think about your weekly packet. Your gross pay is the starting point. From that, your employer deducts tax (PAYG withholding) and, if applicable, the Medicare levy (estimated at 2% once annualised ordinary gross reaches $30,000). The low-income tax offset and other offsets may reduce your tax, but this guide does not model them. Salary sacrifice reduces your gross taxable income, so your tax withholding may decrease. However, the benefit itself may have fringe benefits tax implications for your employer, which can affect the arrangement.

Tax and Medicare Considerations

For the 2026-27 tax year, resident rates with the full tax-free threshold apply. The ATO's shade-in thresholds determine the real low-income reduction. This guide leaves out the low income tax offset, HELP repayments, and the Medicare levy surcharge. Salary sacrifice for a car is a non-super benefit, so it does not affect your super guarantee directly. Your employer must still pay 12% super on your ordinary time earnings before the sacrifice. For example, if your salary is $1,200 per week, your employer pays $144 super on top. After salary sacrificing $200 for a car, your taxable income becomes $1,000, but your super remains based on $1,200.

Super Guarantee on Top

Super guarantee is an employer payment on top of your ordinary time earnings. From 1 July 2026, the rate is 12%. This is separate from your salary and is not reduced by salary sacrifice for a car. The ABS May 2026 data shows full-time adult ordinary-time earnings of $2,083.70 per week and all employees average total earnings of $1,579.20 per week. These averages are much higher than the minimum wage, reflecting negotiated salaries and market rates. Your salary sacrifice arrangement should be considered alongside these figures, but the legal floor is what matters for compliance.

For more details on which minimum wage applies to you, see Which minimum wage applies and Rate tables. You can also explore Guides for further information on salary packaging and award coverage.

Summary

The national minimum wage is $26.44 per hour or $1,004.90 per week, plus 12% super. Salary sacrifice for a car is a separate arrangement that reduces taxable income but does not lower the minimum cash wage. Always check your award or agreement, as they may set higher rates. This site provides orientation only and is not a pay determination or legal advice.