Salary sacrifice super: how it works and what employers need to know

Published Saturday 25 July 2026

Table of contents

• What is salary sacrifice super?
• Benefits of salary sacrifice super
• How does salary sacrifice work for employers?
• Is salary sacrifice worth it?
• How much can an employee salary sacrifice each year?
• What are employer obligations for salary sacrifice super?
• How do you set up salary sacrifice super in payroll?
• Simplify salary sacrifice super with Xero
• FAQs on salary sacrifice super

Key takeaways

• Salary sacrifice super is a pre-tax arrangement where an employee agrees to forgo part of their salary in exchange for you making an equivalent contribution to their super fund, on top of your superannuation guarantee (SG) obligation.
• All before-tax contributions, including SG and salary sacrifice, count toward the concessional contributions cap of $30,000 for 2024 – 25, and employees with a total super balance below $500,000 may be able to use carry-forward rules to contribute more.
• To stay compliant, put the arrangement in writing, set up a pre-tax deduction coded as reportable employer super contributions (RESC), pay via SuperStream on time, and report correctly in Single Touch Payroll phase 2 (STP 2).
• Payroll software can automate the setup, payments, and STP 2 reporting for salary sacrifice super, reducing manual admin and the risk of errors or missed deadlines.

What is salary sacrifice super?

Salary sacrifice superannuation is an arrangement where an employee agrees to forgo part of their future salary or wages in exchange for you (the employer) directing that money into their super fund instead of their bank account. It's a before-tax arrangement, which means the sacrificed amount is deducted from the employee's gross pay before income tax is calculated, reducing their taxable income for that pay period.

For the employee, the main salary sacrifice super benefits are potential tax savings. Instead of paying income tax at their marginal rate (which could be 30%, 37%, or 45% for higher earners), the contribution is taxed at the concessional super rate of 15% inside the fund. This can make a significant difference for employees on higher incomes who want to boost their retirement savings in a tax-effective way.

For you as the employer, salary sacrifice super doesn't reduce your costs. You're still paying the same total amount, just directing more of it to super instead of take-home pay. However, offering salary sacrifice can be a valuable employee benefit that helps attract and retain talent, and it demonstrates you're willing to support your team's long-term financial goals.

Salary sacrifice is separate from the superannuation guarantee (SG). You must still calculate and pay the SG on the employee's ordinary time earnings base, and the salary sacrifice amount is an additional contribution on top of that minimum requirement.

Benefits of salary sacrifice super

Salary sacrifice super offers meaningful tax and savings advantages for employees, and a low-cost way for employers to strengthen their remuneration package. Here's what both sides gain from the arrangement.

• Pay less tax. Salary sacrifice reduces an employee's taxable income by redirecting part of their pre-tax salary into super. Instead of paying income tax at their marginal rate (up to 45%), the contribution is taxed at just 15% inside the fund. For employees earning above $45,000 per year, that's an immediate tax saving on every dollar sacrificed.
• Grow retirement savings. Extra contributions made through salary sacrifice compound over time inside the super fund, building retirement savings faster than after-tax contributions of the same amount. Because contributions go in before tax, more money enters the fund from each dollar of salary, giving it more time to grow.
• Investment tax benefits inside super. Super funds pay a maximum of 15% tax on investment earnings, compared with the marginal rates that apply to investments held personally. This means salary sacrifice contributions not only enter the fund at a lower tax rate, they also continue to grow in a lower-tax environment for the life of the investment.
• Attract and retain staff. Offering salary sacrifice is a practical, low-cost employee benefit that can help you attract and retain talent without increasing your base payroll costs. Because the arrangement is funded from the employee's existing salary, your total employment cost stays the same while the employee receives a more tax-effective remuneration package.

How does salary sacrifice work for employers?

Once an employee requests to salary sacrifice, the arrangement works through your payroll system. You agree on an amount or percentage of salary to be sacrificed, document it in writing, then set up a pre-tax deduction in your payroll software. Each pay run, the system deducts the agreed amount before calculating income tax, reducing the employee's taxable income and take-home pay for that period.

You then pay the sacrificed amount to the employee's nominated super fund by the quarterly due dates (or on payday after 1 July 2026), along with your SG contributions. The payment must be made electronically via SuperStream, and you need to report the sacrificed amount separately as reportable employer super contributions (RESC) in your Single Touch Payroll phase 2 (STP 2) reporting.

Is salary sacrifice pre-tax or after-tax?

Salary sacrifice is a pre-tax deduction. The amount is taken from the employee's gross salary before income tax is calculated, which is why it reduces their taxable income. Once the contribution reaches the super fund, it's taxed at the concessional rate of 15% (or 30% on the excess if the employee earns above the $250,000 threshold and Division 293 tax applies). This is different from after-tax contributions, where the employee uses their net pay to make personal super contributions and may claim a tax deduction separately.

Does salary sacrifice reduce super guarantee?

No, salary sacrifice super doesn't reduce your superannuation guarantee obligation. You must still calculate and pay SG on the employee's ordinary time earnings, with salary sacrifice treated as an extra contribution.

Quick example

Let's say an employee earns $80,000 per year in ordinary time earnings and agrees to salary sacrifice $200 per fortnight ($5,200 per year) into super. Here's how the numbers break down:

• SG calculation: 12% of $80,000 = $9,600 per year (your minimum SG obligation)
• Salary sacrifice: $5,200 per year (the additional amount the employee has agreed to forgo)
• Total super contributions: $9,600 (SG) + $5,200 (salary sacrifice) = $14,800 per year

Each fortnight, you deduct $200 from the employee's gross pay before calculating PAYG withholding, reducing their taxable income. You then pay both the SG and the salary sacrifice amounts to the employee's super fund, and report the $5,200 as RESC in STP 2.

Is salary sacrifice worth it?

Whether salary sacrifice makes sense depends on the employee's income, tax rate, super balance,and savings ambitions. As an employer, understanding these factors helps you guide employees through the decision and set up arrangements that genuinely benefit them.

When it works well for employees

Salary sacrifice tends to deliver the most value in these situations:

• Higher marginal tax rate: Employees paying tax at 30% or above save the most, because the gap between their marginal rate and the 15% concessional rate is largest
• Long time horizon: Younger employees benefit more from compounding, as contributions have more years to grow inside the fund
• Super balance below $500,000: Employees under this threshold may also access carry-forward rules to contribute more in a single year using unused cap from previous years
• Stable income: Employees with predictable income can comfortably reduce their take-home pay without cash flow pressure

When to think carefully

Salary sacrifice doesn't suit every situation. Employees in these situations should review the arrangement carefully before committing:

• Lower income earners: Employees earning below $45,000 per year pay a marginal tax rate of 16% or less. At these rates, the tax saving is smaller, and after-tax contributions may be more effective, particularly if they're eligible for the government co-contribution.
• Near the concessional cap: Employees whose employer SG contributions already take them close to the $30,000 concessional cap have limited room to salary sacrifice without triggering excess contributions tax.
• Tight cash flow: reducing take-home pay can put pressure on employees managing mortgages, rent, or other fixed costs. Encourage employees to model the impact on their net pay before agreeing to an arrangement.

Ask employees to speak with a financial adviser before they commit to salary sacrifice, especially if their income or super balance is close to any of these thresholds.

How much can an employee salary sacrifice each year?

Employees need to be aware of the concessional contributions cap to avoid excess contributions tax. The cap applies to all before-tax contributions, including your SG payments and any salary sacrifice amounts. For the 2025 – 26 financial year, the concessional contributions cap is $30,000, going up to $32,500 as of 1 July 2026. If an employee's total concessional contributions exceed this cap, the excess is taxed at their marginal rate plus an interest charge, and they may be able to withdraw some of the excess from their super fund.

What is the concessional contributions cap?

The concessional contributions cap is the maximum amount of before-tax super contributions an employee can make in a financial year without triggering extra tax. It covers all before-tax contributions combined, including:

• superannuation guarantee contributions you make as the employer
• salary sacrifice contributions
• any personal deductible contributions the employee makes themselves

The cap is indexed and can change each year, so check the ATO's concessional contributions cap guidance for the current limit. For 2024 – 26, the cap is $30,000 per person.

Can employees carry forward caps?

Yes, eligible employees may be able to use unused concessional contributions cap amounts from previous years under the carry-forward rules. To be eligible, an employee's total super balance must be less than $500,000 at 30 June of the previous financial year. If they meet this test, they can carry forward unused cap amounts from up to five previous financial years (starting from 2018–19) and make larger concessional contributions in the current year without exceeding their effective cap.

Employees should confirm their eligibility and available carry-forward amounts through their myGov account or by speaking with a financial adviser. As the employer, you don't need to track carry-forward amounts; your role is to report contributions accurately and on time.

What if an employee exceeds the cap?

If an employee's total concessional contributions exceed the cap, the ATO will assess the excess as part of their taxable income and charge tax at their marginal rate, plus an interest charge. The employee will receive an excess concessional contributions determination from the ATO, and they may be able to elect to release up to 85% of the excess from their super fund to help pay the tax bill.

This is why keeping accurate records and communicating clearly with employees matters. If an employee is salary sacrificing, encourage them to monitor their total contributions throughout the year and adjust the arrangement if they're at risk of exceeding the cap.

What are employer obligations for salary sacrifice super?

As the employer, you have specific legal and reporting obligations when you offer salary sacrifice super. These obligations sit on top of your existing SG requirements and are designed to ensure contributions are made correctly, on time, and reported transparently to the ATO.

Written agreements and eligibility

You must put the salary sacrifice arrangement in writing before you start deducting amounts from the employee's pay. The agreement should include the following details:

• the amount or percentage of salary to be sacrificed
• the frequency of the deduction (for example, each fortnight, monthly)
• the start date and any review or end date
• the employee's nominated super fund details
• confirmation that the arrangement is voluntary and can be changed or stopped by agreement

Before you finalise the agreement, check the employee's award, enterprise agreement, or employment contract to confirm salary sacrifice is allowed and that reducing their take-home pay won't breach any minimum wage or other entitlements.

Payment timing and SuperStream

Until 1 July 2026, you must pay salary sacrifice contributions to the employee's super fund by the quarterly due dates.If the due date falls on a weekend or public holiday, the deadline is the next business day.

After 1 July 2026, new legislation dictates that super contributions are to be paid on the same day as normal payroll salary or wages. Paying on time helps you avoid the superannuation guarantee charge (SGC). The charge applies if you're late or underpay SG, and can also apply to late salary sacrifice payments if they were part of an employee's agreed remuneration.

All contributions and contribution data must be sent electronically via SuperStream. This ensures the payment and data are matched correctly at the super fund, reducing errors and processing delays. Most payroll software handles SuperStream automatically, but if you're processing payments manually, you'll need to use a SuperStream-enabled service or clearing house.

Monitor and review contributions

Tracking year-to-date contributions helps you and your employees avoid unexpected excess contributions tax. While the ATO ultimately assesses each employee's concessional cap position, you can flag risk early by reviewing total contributions (SG plus salary sacrifice) against the $30,000 annual cap throughout the year.

Check year-to-date contribution totals in your payroll reports at the end of each quarter. If an employee's combined contributions are tracking close to the cap, let them know so they can adjust or pause the arrangement before the financial year ends.

You don't need to calculate each employee's personal cap position, including any unused concessional cap amounts they can carry forward. Your role is to report contributions accurately in Single Touch Payroll Phase 2 and give employees the information they need to manage their own cap through their myGov account.

STP Phase 2 reporting and RESC

You must report salary sacrifice contributions separately from SG in your Single Touch Payroll Phase 2 (STP 2) reporting. The sacrificed amount is classified as reportable employer super contributions (RESC) and must be reported in the RESC field each pay run, with a year-to-date total shown on the employee's income statement (formerly the payment summary).

RESC is used by the ATO and other government agencies to assess an employee's income for tax, Medicare levy surcharge, and family assistance purposes. It's also visible to the employee on their myGov account, so accurate reporting helps them track their total contributions and manage their concessional cap. Make sure your payroll software is set up to report RESC correctly in STP 2, keep SG and RESC separate in your year-to-date totals, and review your STP reports before lodging to catch any errors.

Payroll tax and workers compensation

The treatment of salary sacrifice for state payroll tax and workers compensation premiums varies by state and territory. In some jurisdictions, the salary sacrifice amount is included in the payroll tax base; in others, it may be excluded or treated differently depending on the type of sacrifice.

Before you lodge your payroll tax or workers compensation returns, confirm the rules in your state or territory. Your payroll software may handle this automatically, but it's worth checking with your accountant or state revenue office to ensure you're calculating and reporting correctly.

How do you set up salary sacrifice super in payroll?

Setting up salary sacrifice super in your payroll system is straightforward once you understand the steps. Follow these steps to implement the arrangement correctly and run it consistently each pay period.

1. Confirm eligibility and terms

Have a written agreement in place that clearly outlines the amount or percentage the employee wishes to contribute. Under Australian law, these agreements must be prospective, meaning they can only apply to future earnings and cannot be applied retrospectively to work already performed. Verify that the employee’s super fund can accept these contributions and that the arrangement won't cause them to exceed their annual concessional contributions cap. Finally, remind your employee that salary sacrifice contributions are considered employer contributions and will be reported as such through Single Touch Payroll (STP).

2. Set up the payroll item

Create a before-tax deduction in your payroll software, coded to reportable employer super contributions (RESC) for correct STP 2 treatment. Label it clearly (for example, "Salary SacrificeSuper") so it's easy to identify in reports. A clear naming convention also makes it easier to review settings across multiple employees or pay runs.

3. Protect the SG base

Make sure your payroll software calculates superannuation guarantee on ordinary time earnings before any salary sacrifice deduction. The SG base must not be reduced by the sacrificed amount. For example, if an employee earns $80,000 in ordinary time earnings and salary sacrifices $5,200, your SG calculation should still be based on the full $80,000, giving you a minimum SG obligation of $9,600 (at the minimum 12% rate).

4. Process each pay run

Deduct the salary sacrifice amount pre-tax, calculate SG on the correct base, and check year-to-date figures for both SG and RESC to ensure they're tracking separately and accurately. Reviewing these figures each pay run helps you catch any setup errors before they compound over the year.

5. Pay contributions via SuperStream

Send the sacrificed amount (along with SG) to the employee's super fund by the due date. Payday Super is implemented from 1 July 2026, meaning employers must pay their employees their SG on the same day as they pay out salary or wages.. Label the payment clearly as salary sacrifice in your SuperStream message so the fund can allocate it correctly. Keeping SG and salary sacrifice clearly separated in your SuperStream data reduces the risk of misallocation at the fund.

6. Report through STP 2

Lodge your STP report on or before the pay day, with RESC and SG kept separate and accurate. Review the year-to-date totals before lodging to catch any errors. Consistent, timely lodgment also gives employees an up-to-date view of their contributions through myGov.

7. Maintain records

Store the signed agreement, contribution confirmations, and payroll reports for at least five years. Review the arrangement with the employee if they request a change, and update your payroll settings accordingly. Good record-keeping makes it straightforward to respond to ATO queries or employee questions about their contributions.

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FAQs on salary sacrifice super

Here are answers to common questions employers have about salary sacrifice super arrangements.

Does salary sacrifice reduce the employer's SG?

No, salary sacrifice super doesn't reduce your superannuation guarantee (SG) obligation. You must still calculate and pay SG on the employee's ordinary time earnings, with salary sacrifice treated as an extra contribution.

Do I need to pay fringe benefits tax on salary sacrifice super?

No, salary sacrifice contributions to a complying super fund are exempt from fringe benefits tax (FBT) under current ATO rules. This makes salary sacrifice to super one of the most tax-effective salary packaging options available. However, if you package other salary benefits (such as a car or school fees), FBT may apply to those items.

Can casuals or part-time staff salary sacrifice?

Yes, casual and part-time employees can salary sacrifice into super, provided the arrangement is documented in writing and doesn't breach any award, enterprise agreement, or minimum wage requirements. Make sure the employee's take-home pay after salary sacrifice still meets or exceeds the minimum hourly rate and any other entitlements under their award or agreement.

When do I have to pay salary sacrifice amounts?

Prior to 1 July 2026, you must pay salary sacrifice contributions to the employee's super fund by the same quarterly deadlines as superannuation guarantee contributions. After this date, super salary sacrifices are to be paid on or before payday along with SG. If you pay late, the superannuation guarantee charge may apply.