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Not for profit salary packaging


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Does your not for profit offer salary packaging to employees?

For many NFP organisations, salary packaging – also known as salary sacrificing – is an important tool that enables them to offer added employment benefits without incurring extra costs.

Today, we take a closer look at not for profit salary packaging. We discuss how the right salary structure can help both the employer and the employee, and we highlight some of the key features.

If you aren’t already using it within your organisation, this might inspire you to roll it out and enjoy a few more dollars in everyone’s pockets.

How does salary packaging work?


The aim of salary packaging is to achieve a tax-effective method of delivering income and benefits to your employees. In a sector where every cent counts, it’s crucial that you can maximise someone’s take home amount. Salary packaging can also help you attract highly skilled people who may otherwise look to the commercial world to achieve their income goals.

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The ATO outlines salary packaging as:

“…an arrangement between an employer and an employee, where the employee:

  • agrees to permanently forego part of their future entitlement to salary or wages
  • receives benefits of a similar cost (to the employer) in return
  • is likely to place greater value on the benefit than its cost to the employer.”

Under this type of agreement, the NFP employer provides a designated portion of the employee’s salary in the form of benefits. Currently, the maximum annual sacrifice amount is $15,900. The sacrifice calculation occurs before tax and therefore the overall taxable income decreases. The employee’s regular ‘cash’ salary comes from this lower taxable income amount and is paid as a normal wage alongside their benefits.

NFP fringe benefits


Salary packaging works well in the not for profit space as NFPs have a different tax status to that of commercial employers. Many non profit organisations are eligible for Fringe Benefit Tax concessions… and depending on your NFP’s status, you may even be FBT exempt.

This means that instead of paying the entire salary in the form of ‘cash’ wages, the sacrificed portion of it is available to the employee in the form of fringe benefits.

In simple terms, your employees pay less income tax and you provide them benefits with reduced or nil fringe benefit tax… it’s an all round win-win situation.

We understand that this is a complicated concept, so please see the table below as a hypothetical example of salary packaging. The cost to the employer is the same in both instances, but you can see how salary packaging can provide the employee with a significantly higher net figure.

Unpackaged Salary

FBT-exempt Salary Package

Gross salary $80,000 $80,000
Salary sacrifice $15,900
Taxable income $80,000 $64,100
Tax $18,067 $12,582
Net income including salary sacrifice $61,933 $67,418
After tax benefit to employee* $5,485

 

* We must stress that individuals should do their own calculations, as other sources of income or deductions such as HECS-HELP will impact the result. These calculators from Community Business Bureau and Simply Green will help individuals work out the benefit.

The ATO has extensive information on salary sacrifice arrangements for employees. You can read in more detail on their website.

What can you include in a salary package?


Within the corporate world, employees sometimes have a salary package that includes their vehicle or superannuation, but for NFP employees there is a greater range of options available to them… and this is what makes it such an attractive offer.

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These can include:

  • Everyday expenses – employees can pay for general living expenses such as their mortgage or rent, credit card and loan repayments, school fees or even health insurance through their salary package. They can elect to receive their benefits on a debit card and can spend their salary sacrificed funds as and when they choose.
  • Meals and entertainment benefits – employees can allocate up to $2,650 each FBT year towards entertainment benefits. Employees can use this to pay for things like holiday accommodation or eating out at restaurants or cafes.
  • Novated lease – this is also known as salary packaging a vehicle and can be a cost-effective way to buy and run a car.
  • Remote area benefits – if an employee lives and works in a remote area, they may be able to access additional allowances, including holiday transport.

Talk to an NFP accounting expert


As we’ve highlighted, not for profit salary packaging can be beneficial for both your NFP organisation as well as your employees. But it is a complex model that must be correctly structured to make sure you achieve the best results.

Here at Accounting For Good we are NFP accounting experts and our team can help your organisation make the most of salary sacrifice arrangements. If you want to find out more, please contact us today.

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