As Australia’s Not for Profit sector grapples with labour shortages and retaining workers, salary packaging, also known as salary sacrificing, could be an under-utilised part of tackling the problem.
Salary packaging is not uncommon across the NFP sector, but could be used more effectively and is potentially a low-cost tool for NFPs to attract and retain staff.
Last month a study by aged care service consultants CompliSpace found 47,000 Australian workers in the sector are likely to leave their jobs in the next year due to stress from understaffing and pay rates.
Salary packaging could be inaccurately viewed as onerous and costly by organisations operating in the NFP space, and they may be unaware of concessions available to them and the incentives they can offer to staff.
Salary packaging effectively gives employees more cash in hand, as the packaged expenses are paid for with ‘before tax’ income and a reduced amount of income tax is deducted from their pay.
Employers, particularly in the NFP space, have access to additional concessions for fringe benefits tax, which means they can offer a range of items under salary packaging. Common expenses to be packaged include car expenses, school fees and mortgage payments. With little to no cost to the employer, if the employer meets certain exemptions or concessions, this is a ‘win/win’ situation. Putting additional money into superannuation via salary packaging is common because salary packaging superannuation is exempt from fringe benefits tax regardless of the type of employer.
Concessions such as a fringe benefits tax exemptions or rebates are dependent on the type of NFP the employer is, and this is approved by the ATO and endorsed by the Australian Charity and Not-for-profit Commission for those appropriately registered.
FBT exemption can mean that expenses up to a cap of either $17,000 or $30,000 per employee per year (the amount depends on the type of NFP the employer is), are exempt from fringe benefits tax. Where expenses exceed these caps, this does not mean salary packaging cannot occur, only that there is fringe benefits tax to pay.
Whilst salary packaging reduces the declared taxable income for employees, it is important to note that employees who receive other entitlements, or are required to make repayments based on their income, will have these benefits added back to calculate an ‘adjusted taxable income’ for these purposes.
This includes Centrelink benefits, Medicare Levy Surcharge, Private Health insurance rebates, Child Support payments and HELP debt repayments.
Exempt benefits can apply to many organisations in the NFP sector and I would urge employers to check the criteria and if it could be of benefit for them and their employees, discuss these options with their employees.