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Salary packaging (also known as salary sacrifice or salary exchange) is the inclusion of employee benefits (also called fringe benefits) in an employee remuneration package in exchange for giving up part of monetary salary. Such arrangements are entered into most commonly if there are tax or other benefits to be derived by the employer or employee from the arrangement.
Salary sacrifice in the United Kingdom
In the United Kingdom, employee benefits commonly included in salary sacrifice arrangements are pension contributions, childcare vouchers, annual leave, etc. If correctly structured, the arrangement can benefit both parties as it saves them both NI contributions as well as save the employee income tax.
Salary sacrifice can be extended to any range of benefits and in 2008 is becoming increasingly popular in the public sector as well as for transport related benefits e.g. Cycles, Bus Travel and Low CO2 emission cars. Salary sacrifice is also commonly used to fund the introduction of Flexible Benefit Plans in the UK.
Salary packaging in Australia
Items commonly salary packaged include:
Some companies also allow their employees to salary package other items, including household utility bills, although this is complicated and normally requires the assistance of a third-party company who specialise in salary packaging arrangements. Salary packaged benefits in Australia generally attract Fringe Benefits Tax within the Australian taxation system, with a few exceptions - some benefits are Fringe Benefits Tax exempt, including mobile phones and laptop computers if used for work purposes.
Charities and public not for profit hospitals can do this most effectively as they are exempt from fringe benefits tax up to a certain limit per employee (from 1 April 2014 the amounts are $9,010 for Not-for-Profit Public Hospitals and $15,900 for Public Benevolent Institutions). Additional benefits can be packaged above these limits through novated leasing, meals and entertainment or venue hire (holiday accommodation) as well as personal superannuation contributions subject to Concessional Contributions Caps.
The Australian Salary Packaging Industry Association  is the professional body for outsourced salary packaging service providers. The Australian Taxation Office administers Fringe Benefits Tax and the FBT Exemptions that facilitate salary packaging for employees of not-for-profit healthcare organisations and public benevolent institutions.