Salary sacrifice superannuation is one of the more popular employee benefits in the Australian workplace — it lets employees direct pre-tax salary into super, reducing their income tax while boosting retirement savings. For employers, the arrangement is administratively straightforward in principle but creates several bookkeeping and compliance obligations that are worth understanding clearly, particularly since the super guarantee base protection rules changed in 2020.
What Salary Sacrifice for Super Actually Is
Under a salary sacrifice arrangement, an employee agrees to forgo a portion of their future salary in exchange for their employer making additional super contributions on their behalf. These sacrificed amounts are classified as employer contributions, not employee contributions — they go in as concessional contributions, taxed at 15% inside the fund rather than at the employee's marginal rate.
The practical benefit is significant. An employee on a 34.5% marginal rate (including Medicare Levy) who salary sacrifices $10,000 per year saves approximately $1,950 in tax compared to receiving that money as salary and contributing it personally as a non-concessional contribution.
Salary sacrifice is separate from the compulsory Superannuation Guarantee. Employers must make SG contributions on the employee's ordinary time earnings — and this is where the 2020 rule change matters.
The 2020 SG Base Protection Rule Change
Before 1 January 2020, salary sacrifice amounts reduced the employee's ordinary time earnings for SG calculation purposes. An employee earning $80,000 who sacrificed $10,000 had their SG calculated on $70,000, meaning the employer's minimum super obligation was lower. This created a situation where some employers were effectively passing the cost of salary sacrifice onto the employee's retirement savings.
The law changed: from 1 January 2020, salary sacrifice amounts cannot be used to reduce the ordinary time earnings base for SG purposes. The employer must calculate SG on the pre-sacrifice salary. In the example above, SG is calculated on $80,000 regardless of the $10,000 sacrifice.
This matters for bookkeeping: the payroll system must calculate SG on the full pre-sacrifice gross, not the reduced take-home figure, and the salary sacrifice contribution is recorded separately as an additional employer contribution — not as a substitute for SG.
Bookkeeping Entries for Salary Sacrifice Super
The payroll journal for a salary sacrifice arrangement typically looks like this:
- Debit: Wages expense (gross salary, pre-sacrifice) — e.g. $5,000 fortnightly
- Credit: PAYG Withholding payable (calculated on the $5,000 gross, less the $500 sacrifice)
- Credit: Salary sacrifice super payable — $500
- Credit: Net wages payable (what hits the employee's bank)
- Debit: Superannuation expense (SG on $5,000 gross) — e.g. $550 at 11.5%
- Credit: Superannuation payable — $550
The sacrifice amount reduces taxable income for PAYG purposes but does not reduce the SG base. Both the SG and the salary sacrifice contributions flow to the employee's nominated fund, but they must be recorded and remitted separately if the fund requires it — most clearing houses will accept them together with appropriate coding.
STP Reporting for Salary Sacrifice
Under Single Touch Payroll Phase 2, salary sacrifice super is reported as a separate component in the payroll event. The gross salary is disaggregated into:
- Salary or wages (post-sacrifice, the employee's reduced gross for PAYG purposes)
- Salary sacrifice type S (super sacrifice amounts)
The Year-to-Date figures reported through STP must be consistent, and the annual income statement the ATO pre-fills for the employee will reflect the sacrificed amounts as employer contributions — not on the employee's assessable income. Errors in STP reporting that misclassify salary sacrifice as employee contributions or fail to report it separately will generate ATO data matching discrepancies at tax time.
Concessional Contribution Caps and Employer Obligations
Under current ATO rules, concessional contributions — which include SG, salary sacrifice, and any personal contributions claimed as a deduction — are capped at $30,000 per year for 2024–25 and 2025–26. Employers have no direct obligation to monitor whether an employee's total concessional contributions exceed this cap, but they do have an obligation to remit the contributions the employee has agreed to sacrifice.
Where an employee is at risk of breaching the cap (for example, if they have multiple employers, each making SG contributions, or if they made significant personal concessional contributions), the excess is included in the employee's assessable income and taxed at marginal rates with a 15% offset. The ATO issues an excess concessional contributions assessment to the individual — the employer is not directly liable — but a bookkeeper managing payroll for such an employee should flag the risk.
Employees can now carry forward unused concessional cap amounts from prior years (where their total super balance is below $500,000), which sometimes leads to larger catch-up sacrifice amounts mid-year. These are valid, but the remittance timing rules still apply: SG and salary sacrifice contributions must be paid to the fund by the quarterly due dates regardless of contribution size.
Salary Sacrifice Agreements and Documentation
Salary sacrifice arrangements must be genuine — the employee must agree to sacrifice before earning the income, not after. Backdating agreements or converting amounts already earned into salary sacrifice is not permissible and risks the arrangement being recharacterised by the ATO.
The employer should have a signed salary sacrifice agreement in place, documenting the amount to be sacrificed, the commencement date, and the right of either party to vary the arrangement with notice. The payroll system should be updated to reflect the arrangement from the agreed start date. Bookkeepers setting up salary sacrifice for the first time should confirm that the payroll software correctly handles the STP Phase 2 disaggregation before the first pay event is processed.