Salary Packaging & it's Advantages

Salary Packaging is defined as the process of an employee specifying the components

of their total remuneration, which may be a combination of cash salary or benefits in accordance with a menu of items allowed by an employer. It often involves the employee forgoing a part of their future entitlement to salary or wages in return for the employer providing them with benefits with the same total cost to the employer, but providing better value to the employee.

To be effective for tax purposes, the package must be agreed before the work commences. The sacrificed salary must be permanently forgone for the period of the arrangement. The timing of the payment of benefits may not however coincide with the payroll period. Therefore where you have reached the end of a salary sacrifice arrangement accounting period, or where you have terminated, then the remaining cash earmarked to be used to pay the benefit(s) must be taken as taxable salary and superannuation (where applicable).

Many fringe benefits can be included in your Salary Package if your employer agrees. Some common benefits include motor vehicles, allowances, reimbursements, extra superannuation within government limits, otherwise deductible items and exempt benefits.

The main advantages to an employees are to: increase their net disposable income; reduce their tax liabilities and to increase their long term investments through superannuation.

Charities and public & not for profit hospitals have legislative advantages in the items that can be paid as a benefit, as they are exempt from fringe benefits tax up to a certain limit per employee for these organisations. Salary packaged benefits in Australia generally attract Fringe Benefits Tax within the Australian taxation system, with a few exceptions - some benefits are Fringe Benefits Tax exempt, including mobile phones and laptop computers.

Generally, your employer or outsourced salary packaging manager, provides an estimate to the employee based on the options they have selected in their salary package. Once this has been accepted by the employee, the salary packaging manager sets up the salary package and payroll with the individual's employer.

For each pay cycle the employer forwards the total cost of the employee's employment to the salary packaging manager, who then calculates the package based on the options selected, and pays the monies either idirectly into the employee's bank account or to benefit suppliers on the employee's behalf.

Salary Packages with a rich selection of benefits to an employee also provide many benefits to Employers. They include: 1. Good staff retention; 2. improved cash flow as less pressure on bonuses or wage increase; 3. attract staff; 4. able to be outsourced with costs met by the employee; 5. potential reduction in workers compensation, public liability and payroll tax.

Benefits for the Employees include: 1. increased disposable income; 2. pay less income tax; 3. reduced administrative burden; and 4. administrative costs tax deductible off your package. The individual takes home more money and receives tax effective salary packaging. Therefore, the employer can offer packaging to their employees,. Without the hassle of administration and calculations, whilst reducing internal costs.

However you must be wary to avoid over packaging, where you do not have enough take home pay to you're your general living expenses.

Salary Packaging & it's Advantages

By: Kristen Stewart

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