Salary Packaging

Effective salary sacrifice arrangement (SSA)

Can an employer and employee agree to an effective SSA when a modern award is silent on this point?
Generally an employee will approach the Payroll or Human Resources department of their organisation regarding the possibility of commencing a salary sacrifice arrangement (SSA).

However very often the modern award that governs the employment of the employee does not contain a “salary sacrifice” clause or a “salary packaging” clause. Typically the employee’s current annual salary is well in excess of the relevant award rate. However, the amount intended to be sacrificed would result in a salary below the current minimum award rate.

While the employer may be amenable to a SSA, there is a concern that such SSA if executed may be in breach of the modern award because there is no specific term that allows for salary sacrifice.

This raises the question whether the employer and the employee can agree to an effective SSA when the modern award does not specify anything in this regard.

The standing proposition acceptable to the ATO is that an employer and an employee can lawfully agree to a SSA by written agreement of the parties, regardless of whether or not the applicable modern award contains a provision allowing a SSA.

However, under s324(a)–(d)) of the Fair Work Act 2009, one of the following conditions must be satisfied for the SSA to be lawful:

• the deduction is authorised in writing by the employee and is principally for the employee’s benefit; or
• the deduction is authorised by the employee in accordance with an enterprise agreement; or
• the deduction is authorised by or under a modern award or a FWA order; or
• the deduction is authorised by or under a law of the Commonwealth, a state or a territory, or an order of a court.

Consequently, the absence of a specific provision regarding salary sacrifice or salary packaging in the applicable modern award, does not prevent the parties from entering into such an arrangement provided the relevant provisions of the Fair Work Act are not contravened.

Indeed, the introduction of a SSA would be considered to be for the employee’s benefit (PAYG taxation advantage). The provision of a SSA where the applicable modern award was silent has been deemed by Fair Work Australia not to be in breach of the Fair Work Act.