The benefit is paid on the employee's behalf by the University, the employee receives less pay and, therefore, pays less PAYE income tax on their reduced income. Salary packaging may be referred to as 'salary sacrificing' or flexible remuneration planning. Salary packaging is gaining in popularity with employers who recognise its potential to attract, recruit and retain quality staff. For the same employment cost, employers may be able to offer a higher net benefit to staff than organisations that offer a more traditional salary approach. Employees, in turn, are given the opportunity to structure their remuneration according to their personal circumstances, age and needs.
Salary packaging is legal and is a practice offered by a number of private and public organisations.
Salary which is packaged retrospectively will be reclassified as income by the ATO and subject to income tax. The salary sacrifice arrangement for packaging superannuation contributions must be properly structured so that the amount sacrificed is not in lieu of an existing and continuing obligation of an employee to make contributions. Changes made to the UniSuper Trust Deed, effective from 1 July 1994, allow employers to pay member contributions to UniSuper. The Tax Office stipulates that, to be effective a salary packaging arrangement must reduce an employee's remuneration. Salary packaging is a voluntary option for members of staff.