If you run a not‑for‑profit (NFP) organisation, you’ve probably heard that salary sacrificing (also called salary packaging) can help you attract and retain great people - without necessarily increasing your cash salary budget.
But once you get past the headline benefits, the questions come quickly: How much can someone salary sacrifice? Which benefits are allowed? What’s the cap? Do we need a policy? What are the tax and employment law traps?
This article breaks down the key considerations for NFP employers in Australia, including how salary sacrifice amounts for not‑for‑profit organisations typically work, what to watch for, and how to set up a compliant program that protects your organisation and your people.
Important note: salary packaging has both employment law and tax consequences. Sprintlaw can help with your employment documents and processes, but we don’t provide tax advice. For cap amounts, eligibility, and how particular benefits are treated for FBT, you should also check the ATO guidance and/or speak with a qualified tax adviser or your salary packaging provider.
What Is Salary Sacrifice (And Why Do NFPs Use It)?
Salary sacrifice is an arrangement where an employee agrees to forego part of their future salary or wages in return for you providing them with certain benefits of a similar value.
In practice, that might look like:
- an employee “packages” a portion of their pre‑tax pay toward living expenses (through an approved arrangement);
- you provide benefits such as a car, parking, devices, or other items; or
- you pay certain expenses on the employee’s behalf (depending on the structure and your eligibility as an NFP).
For many private sector employers, salary sacrifice is often limited because providing benefits can trigger Fringe Benefits Tax (FBT), making it expensive.
However, eligible NFPs can access special FBT concessions, which is why salary packaging is a commonly used tool in the sector.
From a small business NFP perspective, the main benefit is practical: you can offer a more competitive total “package” to employees, while staying within funding constraints - as long as you set it up properly.
It’s important to be clear internally and with staff: salary sacrifice isn’t an additional entitlement. It’s a restructuring of remuneration, and it must be agreed before the employee earns the relevant income.
If you try to “salary sacrifice” amounts that have already been earned, it can create tax and compliance issues.
How Salary Sacrifice Amounts For Not‑For‑Profit Organisations Are Usually Capped
A common question we see (from both employers and employees) is how the salary sacrifice amount works in a not‑for‑profit - because the cap is where most organisations (and employees) get stuck.
In Australia, the maximum salary sacrifice amount for not‑for‑profit organisations is usually driven by:
- your organisation’s FBT concession category (not all NFPs get the same cap);
- the types of benefits being provided (some benefits are treated differently);
- the employee’s actual salary (you generally can’t sacrifice more than what they earn); and
- employment law constraints (like award compliance and minimum pay).
FBT Concessions: Different NFP Types, Different Caps
Broadly speaking, some eligible NFP employers can access an FBT exemption up to a cap. The cap is measured as a grossed‑up taxable value (which is not the same as the employee’s “take home” benefit).
Common examples (at a high level) include:
- Public benevolent institutions (PBIs) and some health promotion charities: may be eligible for an FBT exemption cap of $30,000 (grossed‑up taxable value) per employee per FBT year, subject to ATO rules;
- Public and not‑for‑profit hospitals: may be eligible for an FBT exemption cap of $17,000 (grossed‑up taxable value) per employee per FBT year, subject to ATO rules; and
- Rebatable employers (some NFPs that are not exempt): may instead access an FBT rebate (rather than an exemption) up to a separate cap and conditions.
Important: the exact cap and eligibility depends on your registration/status (for example, charity registration and type), the benefits being provided, and how you structure and administer the arrangement. It’s worth confirming your organisation’s category and FBT position (and checking the current ATO thresholds) before you promise any packaging outcomes to staff.
Grossed-Up Value Vs “Real Dollar” Amounts
FBT caps are usually described using “grossed‑up” values, which can make the salary sacrifice amount feel confusing.
As a simplified explanation:
- Taxable value is roughly the “value” of the benefit being provided.
- Grossed‑up value is an adjusted figure used for FBT calculations to reflect the equivalent pre‑tax salary an employee would need to buy the benefit themselves.
This means an employee may be told they can package “up to” a certain cap (grossed‑up), but the practical day‑to‑day dollar amount they can salary sacrifice will depend on how the packaging is structured and how particular benefits are treated under the FBT rules.
If you’re offering salary packaging, it’s a good idea to provide staff with clear written explanations (and ideally direct them to the packaging provider’s calculators and examples) so expectations are realistic.
Setting Up A Compliant Salary Sacrifice Arrangement (Employer Checklist)
If you’re implementing (or reviewing) salary packaging in your NFP, it helps to treat it like any other core employment and payroll process: document it, communicate it, and make sure the numbers work.
1) Confirm Your Eligibility And FBT Position
Before you advertise “salary packaging available”, confirm:
- your organisation’s FBT status (including whether you’re exempt, rebatable, or neither);
- which employees are eligible (some roles or arrangements can be treated differently); and
- what benefits you will allow (and what you will not allow).
This step is where many issues begin - an NFP may be incorporated and mission-driven, but still not automatically entitled to the same FBT concessions as other charities.
2) Put It In Writing In Your Employment Documents
Salary sacrifice should never be “informal”. If you’re offering packaging, your key documents should reflect it, including:
- the employee’s base salary (before sacrificing);
- the fact that salary sacrifice is optional and subject to eligibility/caps;
- how changes are requested and when they take effect; and
- what happens if the employee goes on leave, changes hours, or ends employment.
This is commonly built into (or attached to) an Employment Contract, along with a separate salary sacrifice agreement or policy.
3) Make Sure You Don’t Breach Award / Minimum Pay Obligations
A major compliance risk is accidentally dropping an employee’s cash salary below what they must be paid under:
- a modern award;
- an enterprise agreement; or
- the National Minimum Wage (and other National Employment Standards).
Even if the employee “agrees” to sacrifice, you still need to ensure their post-sacrifice cash earnings meet the minimum legal requirements that apply to your workplace.
4) Align Payroll, Superannuation, And Reporting
Salary sacrificing can affect:
- how you calculate superannuation (depending on what “ordinary time earnings” are in your context);
- PAYG withholding and payroll configuration; and
- year-end reporting, including whether amounts are reportable on income statements.
A common reporting item is a reportable fringe benefits amount (RFBA), which may need to be reported where thresholds are met. While RFBA generally doesn’t mean the employee pays extra income tax directly, it can impact other calculations (like certain government benefits and liabilities).
Because this is technical, many NFPs use a salary packaging provider and align payroll settings from day one.
5) Back It Up With Clear Policies And Processes
Even small NFPs benefit from having a short, plain-English salary packaging policy explaining:
- who can package (and from what date);
- what benefits are available;
- caps and limits (including what happens if someone exceeds a cap);
- how to vary or end an arrangement; and
- record-keeping and approval steps.
This can sit alongside your broader Workplace Policy framework (and if you have a staff handbook, that’s often where employees will look first).
What Can Be Salary Sacrificed In An NFP (And What Are The Common Pitfalls)?
What employees can salary sacrifice depends on the arrangement, your provider (if you use one), and the tax treatment of the benefit.
From an employer perspective, you should focus on two things:
- Is it allowed and correctly structured for tax purposes?
- Can we administer it consistently and fairly?
Common Salary Packaging Categories In The NFP Sector
While each program is different, many NFP salary packaging programs commonly involve:
- everyday living expenses (via an approved method, depending on eligibility);
- meal entertainment (which may be treated differently from the general cap in some cases, depending on the employer category and the ATO method/elections used);
- car benefits (which can have complex FBT implications); and
- portable electronic devices (sometimes treated concessional in limited circumstances).
The practical point for you as an employer is that NFP salary sacrifice arrangements aren’t one-size-fits-all. The compliant list depends heavily on your category, the specific benefit, and the ATO rules that apply to how it’s provided and substantiated.
Pitfall 1: Promising A Set “Tax Saving” Outcome
Be careful about marketing salary packaging as a guaranteed tax saving.
Two employees may have different results depending on their salary, personal circumstances, and what they package. Your safest approach is to describe salary packaging as an available option and encourage staff to seek independent financial advice.
Pitfall 2: Letting Employees Salary Sacrifice After The Fact
Salary sacrifice needs to be agreed for future earnings. If an employee asks to salary sacrifice a bonus or an amount that’s already been earned, you should pause and check the rules before processing it.
Pitfall 3: Inconsistent Eligibility Or Administration
If only some employees are offered packaging (or some are allowed to package different things without a clear reason), it can lead to workplace disputes.
Even where discrimination law isn’t triggered, unclear policies can damage trust internally. This is one reason having a written policy and consistent payroll process matters.
Employment Law Issues NFP Employers Should Not Miss
Because salary sacrifice sits at the intersection of tax and employment, it’s easy to focus only on the cap and miss the employment law side.
Here are key issues to keep on your radar as an NFP employer.
Leave Entitlements And What Pay Is Based On
Your employment arrangements should make it clear what the employee’s:
- base rate of pay is (before sacrifice); and
- how leave payments are calculated (and whether they’re based on pre-sacrifice amounts).
This is important for annual leave, personal/carer’s leave, and other entitlements that are tied to ordinary earnings.
Changing Hours, Secondments, Or Parental Leave
If an employee changes from full-time to part-time, goes on unpaid leave, or takes parental leave, their salary sacrifice arrangement may need to be paused or adjusted.
Your documents should explain how and when adjustments are made, so you’re not negotiating from scratch each time.
Termination, Redundancy, And Final Pay
When someone leaves, you’ll need to consider what happens to:
- packaged benefits provided in advance;
- any amounts withheld for packaging not yet applied; and
- final pay calculations (including whether the employee owes anything back under the arrangement).
If you are working through a restructure, it can also be helpful to sanity-check your exit numbers using a redundancy calculator so you understand the baseline employment entitlements (separate to any packaging adjustments).
Salary packaging programs can involve collecting and handling personal information (and sometimes sensitive information) about employees, including expense details.
If you collect, store, or disclose employee information to a packaging provider, you should consider whether your organisation needs (or should update) a Privacy Policy and internal privacy processes.
Even where the Privacy Act doesn’t apply to your organisation in the same way it applies to larger entities, good privacy practice is still a smart risk-management move - especially if you’re dealing with vulnerable communities or sensitive services.
How To Communicate Salary Sacrifice Amounts To Staff Without Creating Risk
One of the biggest practical problems we see is expectation mismatch.
An employee hears “you can salary package $X”, assumes it means $X in real spending money, and then later gets confused about payslips, caps, or why certain expenses are rejected.
Clear communication (in writing) reduces admin load and reduces conflict.
What To Include In Your Internal Explanation
Consider providing a short “how it works” overview that covers:
- what salary sacrifice is and that it applies to future earnings;
- the fact that salary sacrifice amounts for not‑for‑profit organisations are usually capped based on FBT rules;
- the difference between grossed-up values and actual dollar amounts;
- how requests are made and when they are processed; and
- where employees can get personalised advice (packaging provider, ATO guidance and/or independent financial advice).
Be Careful With Total Remuneration Statements
If you provide “total remuneration” or “package” statements, ensure your numbers are accurate and consistent with payroll and the employment contract.
This is particularly important if your funding agreements or grants require reporting on salary costs, or if you have multiple sites/teams.
Make Sure Your Business Structure And Governance Support The Arrangement
Even small NFPs should check that the salary packaging arrangement aligns with how the organisation is set up and governed - for example, who approves remuneration changes and how decisions are recorded.
If you’re still early-stage and building a formal structure, the right legal setup and governance framework (for your NFP) helps you implement consistent oversight around payroll and benefits - for example, through a proper Company Set Up or other suitable structure.
Key Takeaways
- Salary sacrifice is a formal agreement to exchange part of an employee’s future salary for benefits, and it should be documented and administered through payroll.
- Salary sacrifice amounts in a not‑for‑profit are usually limited by your organisation’s FBT concession category, the type of benefit, and employment law constraints.
- NFP caps are commonly measured using grossed-up values, which can differ from the employee’s day-to-day “real dollar” benefit amount - so clear communication matters.
- To stay compliant, you should ensure salary packaging does not reduce cash salary below award/minimum wage requirements and is properly reflected in employment documents.
- Strong internal processes (contracts, policies, privacy handling, payroll configuration) make salary packaging easier to manage and reduce disputes.
If you’d like help setting up or reviewing salary packaging documents and processes for your not‑for‑profit organisation, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.
