Salary Sacrificing

Organising salary sacrifice internally can make it harder to justify passing on the costs to the employee, he adds, particularly when the benefits start incurring FBT. So he believes that when staff are aware that it’s outsourced, it’s easier for them to accept they’ll wear more of the cost.

Janssen says he decided to outsource PayGlobal’s salary packaging mainly because it meant they could offer more pre-tax benefits to staff. "The outsourced option offers more choice for our staff in terms of what products we can offer them and what benefits they can get," he says. The most popular benefits for PayGlobal staff have been superannuation, novated car leases, laptops and PDAs. There’s a whole heap of other things the company can offer staff through its outsourced service provider, such as briefcases, electronic diaries, memberships to professional organisations, subscriptions to trade magazines, membership to airport lounges, and so on.

Janssen says a motor vehicle is probably the most complex benefit and requires a lot of reporting, and that’s the benefit of getting another organisation to help. "There’s an accounting part to it as well as the payroll part, and it’s the accounting part that becomes more challenging for smaller organisations because you need to know how to account for the costs of the motor vehicle as well as lease payments and so on. So if you do it directly it would be quite time-consuming and expensive, whereas if you outsource it somebody else does all that and they just give you the paperwork at the end."

Janssen says the selection process for sourcing a company to handle their salary sacrifice arrangements was quite difficult because not a lot of companies specialise in servicing small businesses. However, after doing research and consulting with HR advisers, he ended up going with another end-to-end salary packaging service provider, SmartSalary. While relationships and costs did come into the final decision, the clincher was that SmartSalary offered more benefits for their staff to choose from, which was a priority. They also helped PayGlobal set up all the things they needed internally. "There’s always procedures you need in place even if you outsource. For example, if you want to purchase a laptop, they’ve got a procedure document as well as a form you fill out. So it helps that we were able to get that information from them to put onto our intranet. So staff have got all the information about how to go about using the salary sacrifice."

PayGlobal bear most of the cost, which Janssen says is based on a per annum basis, but it’s not a huge cost. Employees may pay a fee if they get, say, a novated car lease, because of the work that goes into that, but for other benefits there’s no charge to the employee.

So Janssen says it’s important to shop around for the right type of service provider. There are quite a few out there and each offers different salary packages with different benefits, and the costs and degree of administrative support can also vary, so it’s worth doing your research.

Employer’s Key Questions:

Is this something you want to do and why are you doing it? For example, is it a staff attraction and retention strategy? Is this something your staff actually want?

Do you want to wear the cost of it, share the cost with employees, or pass the costs on?

Is your payroll system able to handle salary sacrificing and do pre-tax deductions?

Do you want to handle it internally or outsource the process?

What will you get from a provider if you outsource it? What do they offer and what administration do they provide? Be clear about the accounting requirements and what reporting they will give you, as well as what administration requirements you’ll need internally.

What sort of benefits are you going to allow? There is a huge selection of things you can offer, but this doesn’t mean you have to offer everything. Choose the ones that make it attractive to your staff.

Which staff are going to be eligible?

Salary Sacrifice Example

Sam works as a sales manager and receives an annual salary of $65,000. He wants to enter into a salary sacrifice arrangement and lease a $35,000 car. He expects to travel between 25,000 and 40,000 kilometres for the FBT income year. Sam’s salary packaging provider calculates that he will need to sacrifice $14,484 if no employee contributions are made.

Using the above figures, the following table illustrates how salary sacrificing and employee contributions work by comparing the net disposable income for each scenario. The car expenses of $11,500 are also based on a leasing arrangement.