Salary sacrifice limits and the minimum wage: what you need to know

Salary sacrifice limits and the minimum wage

Salary sacrifice (also called salary packaging) lets you use part of your pre-tax salary to pay for approved benefits such as a car, laptop, or additional super contributions. While this can reduce your taxable income, it is important to understand how salary sacrifice limits interact with Australia’s minimum wage system. This guide explains the key rules and figures.

The legal minimum pay floor

All employees in Australia are entitled to a minimum wage. For employees not covered by an award or registered agreement, the national minimum wage applies. As of 1 July 2026, the Fair Work Commission set the national minimum wage at $26.44 per hour or $1,004.90 per week (based on a 38-hour week). Casual employees receive a 25% loading, making the casual rate $33.05 per hour. These are gross amounts before tax.

If you are covered by a modern award, the award sets a higher minimum wage for your classification. The Fair Work Ombudsman explains that award minimum wages rose by 4.75% from the first full pay period on or after 1 July 2026, but the lowest ongoing classification cannot fall below the national minimum. Some awards have introductory rates (e.g., $25.74 per hour for the first six months) that are lower than the national minimum but are permitted only for a limited time.

How salary sacrifice fits in

Salary sacrifice limits are separate from minimum wage obligations. You can arrange with your employer to sacrifice part of your salary for benefits, but the Fair Work Ombudsman states that a salary sacrifice agreement cannot reduce your base rate of pay below the minimum wage that applies to you. In other words, your cash wage (or the value of benefits you receive) must still meet the legal minimum. For example, if your award rate is $30 per hour, you cannot sacrifice so much that your effective cash wage drops below $30.

Salary sacrifice is usually more beneficial for middle to high income earners because their marginal tax rate is higher. Common benefits include cars, electronic devices, and super contributions. However, most benefits (except super and some exempt items) attract fringe benefits tax (FBT), which the employer pays at the highest marginal rate plus Medicare levy. This can limit what employers offer.

Super guarantee and concessional contributions cap

Employers must pay super guarantee on top of your ordinary time earnings. From 1 July 2026, the super guarantee rate is 12% and applies to each payday under Payday Super. The maximum contribution base for super guarantee is $62,500 per quarter (indexed).

If you salary sacrifice into super, those contributions count towards your concessional contributions cap. The ATO confirms that from 1 July 2026, the general concessional contributions cap is $32,500 per financial year (up from $30,000 in 2025-26). This cap includes your employer’s super guarantee contributions and any salary sacrifice amounts. If you exceed the cap, the excess is taxed at your marginal rate plus an interest charge. Your super fund taxes these contributions at 15% (instead of your marginal rate), making salary sacrifice into super tax-effective up to the cap.

Award rates, enterprise agreements, and negotiated salaries

It is important to distinguish between the legal minimum, award rates, and negotiated salaries. The national minimum wage is the floor for award-free employees. Modern awards set higher minimum rates for specific industries and occupations. Enterprise agreements can set rates above the award. A negotiated salary is whatever you and your employer agree, provided it is at least the applicable minimum.

Salary sacrifice limits do not change these minimums. You can negotiate a salary package that includes benefits, but the cash component (or total value) must not undercut the minimum wage. For example, the ABS reports that full-time adult average weekly ordinary time earnings were $2,083.70 in May 2026 – well above the national minimum. Employees on such salaries have more room to benefit from salary sacrifice.

Age-based and junior rates

Award-free junior employees have lower minimum percentages of the adult national minimum wage. For example, a 16-year-old receives 47.3% ($12.51 per hour) and a 20-year-old receives 97.7% ($25.84 per hour). These rates are the legal minimum cash wage; salary sacrifice cannot reduce them further. Apprentices and trainees have separate pay structures under the Miscellaneous Award.

Key takeaways

• Salary sacrifice limits (e.g., the $32,500 concessional cap) are about tax, not minimum pay.
• Your base rate of pay cannot fall below the applicable minimum wage, even with salary sacrifice.
• Super guarantee is calculated on ordinary time earnings, not the sacrificed amount.
• Award or enterprise agreement rates may be higher than the national minimum and must be paid.

For more details, see Which minimum wage applies and Guides on this site. Always check your specific award or agreement, and consider professional tax advice for salary packaging decisions.

For the published floors, see the rate tables and how the figures work.