Salary Sacrificing in Enterprise Agreements

By ACIRRT

Over the last ten years there has been a major increase in the incidence of salary sacrificing in enterprise agreements.

This increasing popularity may be threatened by recent decisions of the Australian Industrial Relations Commission (AIRC) following on from the Electrolux decision.

Salary sacrificing is defined by the Australian Taxation Office as a voluntary agreement between employees and their employers. Under this agreement, employees contractually give up part of the remuneration they would otherwise receive as salary or wages, in return for their employer providing benefits of a similar value. The main assumption made by the parties is that the employee is then taxed only on the reduced salary or wages and that the employer is liable to pay fringe benefits tax, if any, on the benefits provided. Employers may provide benefits such as employer superannuation contributions, use of a motor vehicle or payment of school fees, childcare costs or loan repayments.

Salary sacrificing has become particularly popular in the public and not-for-profit sectors with 24% and 21% respectively of agreements in these sectors including salary sacrifice. In these sectors salary sacrificing allows employers to provide increased benefits to employees in sectors where salaries are traditionally lower than in the private sector. Public and not-for-profit sector employers are also more able to take advantage of taxation rates to make salary sacrificing more economically viable.

Salary sacrificing is also particularly popular in currently operating agreements from the South Australian jurisdiction, with 32% of South Australian agreements including such clauses compared to 24% in Queensland agreements, 18% in New South Wales agreements, 17% in federal agreements, and 11% in Western Australian agreements.

In terms of industries, 17.6% of agreements in the utilities industry include salary sacrificing provisions, while 17.3% of those in mining, 16.5% in health and community services and 13.6% of those in the education industry include such provisions.

The ADAM report gives examples of clauses, and then provides extended discussion of the impact of the Electrolux decision on clauses in EBAs.

(ADAM Report no 43 December 2004)