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Salary packaging

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Salary packaging (sometimes called salary sacrificing or total remuneration packaging) is a business-specific arrangement which can be implemented in various ways.

It might simply be where an employee's salary includes a base wage plus a phone and laptop. The employee doesn't own the phone and laptop, nor are they paying them off - they're simply provided as part of the job.

Another way a salary package might be implemented is where part of an employee's salary is deducted to pay for items or services. With this type of arrangement, the employee is simply sacrificing part of their salary to pay for something, like a car, a house, or school fees.

What we'll cover in this topic

There isn't a one-size-fits-all approach to salary packaging. We'll explain how to set up a salary package where deductions are taken from an employee's salary to pay for a phone and laptop.

Things can get tricky

Your salary packaging requirements will be specific to your business, so it's a good idea to check the ATO guidelines about the tax implications. The scenario we cover might not meet your needs, so it's best to check with your accounting advisor about the best solution for you.

Setting up a salary package

For each item being packaged, create a liability account and a deduction category.

If you've purchased the items in an employee's salary package, the employee's deductions are repaying you for those items.

If this is the case, record the purchase of the item as a Spend Money transaction and allocate it to the item's liability account. For more details see Salary sacrificing.

Processing a pay

When recording a pay, the deductions will be listed as shown in our example. If the amounts vary each pay, enter the amounts here.

Example pay with salary package items highlighted

If a deduction amount is wrong, check the setup of the deduction category, or the amount entered on the employee's standard pay.