Guidelines of Salary Packaging
- Remuneration Packaging
- Administrative Process
- How To Participate In The Scheme
- Example of Salary Packaging
- Frequently Asked Questions
Whilst every care has been taken to ensure the accuracy of the information contained in this site it is not the intention to provide complete information in this guide.
The University strongly urges all staff contemplating salary packaging to seek independent financial planning advice. No person should rely on the contents of this document without first obtaining such advice.
The document is provided to interested staff on the understanding that the University of Melbourne is not responsible for the results of action taken on the basis of information in this document nor for any error or omission in this document.
The University of Melbourne hereby expressly disclaims all and any liability and responsibility to any reader of this document in respect of anything done or omitted to be done (or the consequences thereof) by any person in reliance upon the whole or any part of this document.
The introduction of Salary Packaging or Flexible Remuneration Packaging is consistent with the University's objective to offer employment conditions which will attract and retain staff of outstanding quality.
The purpose of this guide is to provide staff with information on the Salary Packaging scheme, how it works and the associated administrative arrangements.
What is Salary Packaging?
Packaging allows employees to change the structure of their remuneration package and take non-cash benefits in lieu of salary.
Who can participate?
All staff (excluding casual staff) that are covered by the University of Melbourne Enterprise Agreement.
- Participation in the scheme is voluntary
- Staff can sacrificeup to 100% of their gross annual salary.
- Staff should seek independent financial advice when considering salary packaging.
- The University will regularly review the scheme and may amend aspects of the Scheme.
- If applicable any additional costs in taxation will be passed onto the employee.
- An administration fee may apply on specific benefits.
How does packaging work?
It simply allows staff to elect to take part of their salary as a non-cash benefit and disposable income.
Benefits received in lieu of cash salary are not assessable under the PAYG system and are taxed in accordance with the Fringe Benefits Tax (FBT) Act.
A number of benefits are either exempt from FBT or are treated concessionally for FBT purposes and may provide the employee with a tax advantage by taking the benefit rather than salary. The level of benefit is dependent upon the employee's marginal tax rate.
Taxation/ Policy issues
The Fringe Benefits Tax Assessment Act, Income Tax Assessment Act and Goods and Services Tax Act define how benefits are to be treated for taxation purposes.
The University of Melbourne is not exempt from FBT.
The University's policies set the rules, determines the types of benefits and administrative arrangements that will apply to the Salary Packaging scheme.
What is Fringe Benefits Tax?
Fringe Benefits Tax (FBT) was introduced in 1986 to tax the value of benefits given by employers to employees and their associates. FBT ensures the appropriate tax is payable on benefits which are provided in place of or in addition to salary and wages.
FBT is payable by the employer. However, any FBT and related cost associated with the provision of the benefit will be met form the employees package.
- Treated concessionally for FBT and income tax purposes, such as motor vehicles, additional superannuation;
- FBT exempt such as car parking, childcare, sports centre membership, laptop computers and portable electronic devices;.
There is no advantage to staff members salary packaging items such as school fees, health insurance, loans and mortgages because the University of Melbourne is not FBT exempt.
A review of the benefits offered in the scheme will be undertaken as per legislative changes and/ior discretion of the University as required.
Employees wishing to commence packaging are strongly advised to seek independent financial/taxation advice, particularly in relation to taxation issues and for those items which are more complex (motor vehicles, private superannuation).
Staff members who do not have their own financial advisor should contact a financial planning consultant at their own expense or refer to the ATO website.
How much will it cost?
Where the provision or administration of a benefit results in additional administrative or payroll work a small fee will be charged. The fees will be kept to a minimum and are outlined in the benefits section.
Fees will be deducted from the employee's salary on a pre-tax basis.
Salary for termination and other purposes
Packaging will not change your total gross salary or your terms and conditions of employment.
The employee's non-reduced total gross salary will continue to be used to determine calculations for the following entitlements:
- Employer contributions to Superannuation
- Payment of leave entitlements on termination
- Severance payments
- Annual leave loading
- Overtime and shift penalties.
Ceasing /Varying Packaging
The packaging year runs from the 1 April to 31 March, consistent with the FBT year.
Employees may elect to commence / cease packaging at any time. However, when packaging innvolves reimbursement of a purchase made for work releated items, applications must be made immediately after the purchase.
Packaging must commence in the same FBT year / Tax year as the purchase was made.
What happens if I resign or leave the University?
If an employee leaves the University during a package year, the employee's entitlement to receive benefits ceases and reconciled at the termination date.
Monies owing are offset against any salary, leave and other remuneration that may be due and payable to employees at the termination date.
The University reserves the right to initiate its salary overpayment policy and/or take legal action to recover all monies owing to the University.
Frequently Asked Questions
Q. What are the financial advantages of salary packaging for employees?
Employer provided benefits are treated differently from gross salary under the taxation system. Therefore, employees who sacrifice some of their gross salary and have the University pay for some of their expenses may be financially better off, depending on the benefits packaged and the amount of FBT payable.
Q. Will the University be extending the benefits options in the future?
The range of benefits is reviewed as per discussion of the University or any legislative changes.
Q. What administrative charge will I have to pay?
There will be an annual administrative fee on certain items. However, the fee will only include actual costs associated with the package administration.
The fee is deducted fortnightly (as applicable) from the staff member's pre-tax earnings.
Q. What happens to any of my existing entitlements?
All existing entitlements as per contract of employment will be maintained.
Q. What savings can I expect to achieve?
The savings you achieve will depend on your personal circumstances and what benefits items are packaged..
Q. Can I change or terminate the package?
An employee can as required request changes to the structure of the remuneration package. The salary sacrifice deduction will cease in the next available pay.
Q. Do I have to package my salary?
Q. Will salary packaging have any impact on:
- My future salary increases?
- My annual leave payments and accruals?
- My sick leave payments?
- My long service leave payments?
No, all of these entitlements will still be funded and paid for on a pre package basis.
Q. What happens if I am absent on sick leave?
Deductions will continue to be made and benefits provided while on paid sick leave.
Q. What about annual and long service leave?
Deductions will continue to be made and benefits provided.
Q. What happens if I go on leave without pay?
Pre-tax deductions will cease during periods of leave without salary. Payments will need to be arranged directly by the employee.
Q. What happens if I leave the University?
If an employee leaves the University during a package year, the employees entitlement to receive benefits ceases and their package is ruled off and reconciled at the termination date.
Monies owing are offset against any salary, leave and other remuneration that may be due and payable to employees at the termination date. The University reserves the right to take legal action to recover all monies owing by employees or former employees of the University. If insufficient funds are available at termination to offset the monies owed, 30 days grace will be granted for delivery of the monies.
Monies owed to the employee after reconciliation of the package at termination date will be forwarded by Electronics Funds Transfer (EFT) to the employee's nomiated bank as shown on the employment record within 30 days of leaving the University.
Q. What are the traps of salary packaging?
Common traps are:
- Over packaging - not having enough take home pay to meet other expenses
- Superannuation - including superannuation contributions in your package depends on your personal circumstances (eg; current Reasonable Benefits Limit [RBL], Superannuation Surcharge and any other legislative changes).
Q. Is it legal?
If performed correctly, remuneration packaging is legal and is already established practice in the private and public sectors. Under an agreed Enterprise Agreement between the unions and the University, the benefits described may be packaged and your cash salary reduced accordingly.
Q. What is Fringe Benefits Tax?
The Fringe Benefits Tax Legislation came into operation on 1 July 1986 to tax non cash benefits provided to employees or associates of employees. The main features of the tax are:
- the taxable value of a fringe benefit is grossed up before the application of the tax
- the employer is liable for the tax
- only benefits provided in respect of employment are taxable.
FBT is included within remuneration packages as a component of total employment cost.
Grossed-up is a term used in relation to fringe benefits. The taxable value of a fringe benefit is grossed-up to ensure that the amount of tax paid on a fringe benefit is the same as the tax paid if an employee receives cash salary which is taxed at the highest marginal tax rate plus Medicare levy/
All Salary Packaging forms are available from the HR Forms Library.