Salary sacrificing may have a bit of a branding problem. After all, the word ‘sacrifice’ is right there at the end of it. By making your employees think of unnecessary restraint and self-denial, it doesn’t have the most appealing ring to it.
how to explore the indulgent benefits of salary sacrifice with your employees
Still, it’s an indispensable tool for helping your hardworking employees ensure that they have the capital needed to retire in luxury, something they shouldn’t be surprised by if they take the long view. After all, according to a 2020 survey from News.com.au, about two-thirds of Australians think they need as much as $750,000 saved up for retirement, with 45% of respondents reporting they think they’d need retirement savings totalling over $1 million.
If you want to help your employees prepare for their future, you need to reframe salary sacrificing. It’s not self-neglect. It’s the ultimate form of self-care for future-focussed savvy savers.
Here’s how to change the conversation so your employees can see the indulgent benefits of salary sacrifice.
Tell your employees to keep their hard-earned money for themselves — they deserve it!
Salary sacrificing can be the ultimate ‘treat yourself’ moment. While it may not have quite the panache of a weekend spa trip or a night out on the town, it can certainly serve as a rewarding experience that lets your employees put themselves first.
Why? Salary sacrificing usually means paying less in taxes, allowing your employees to keep more of their earnings for themselves. Concessional super contributions are taxed at a maximum rate of 15%, which, according to the Australian Taxation Office (ATO), is less than the marginal tax rate for most earners.
It’s almost like a bonus they give themselves
With salary sacrificing on the table, your workforce doesn’t have to cross their fingers hoping for an unexpected bonus every year — they may essentially be able to give themselves one when it comes to their tax liability.
By making additional concessional super contributions, employees can lower their overall taxable income. Since they’ve sacrificed immediate access to a certain amount of funds that would have otherwise served as a portion of their salary, the government views their salary as being lower than what they earn. Depending on their circumstances, that could mean that they owe less in taxes. That’s an immediate win on top of their long-term gains!
They can claim a sizeable reward, all at once
Salary sacrificing is typically completed on an ongoing basis. Oftentimes, employees will agree to sacrifice a certain portion from each payslip, which goes directly into their super. There are some benefits to this strategy — including in terms of interest accumulation — but it’s not the only way to do concessional contributions.
There are a couple of reasons for workers to wait until the end of the financial year approaches. For example, they may not know how much they can afford to sacrifice based on other financial goals and commitments. Some people might just find it more exciting to wait and deposit a lump sum all at once. Instead of feeling like they’ve endured a reduced income throughout the year, they’ll feel like they’ve rewarded themselves. You know what? We think that’s a perfectly acceptable guilty pleasure.
The big benefit of salary sacrifice: Watching their super balance grow
Perhaps unsurprisingly, the main reason salary sacrificing is good for your employees is that it gives them a pathway to grow their super savings. To make sure they appreciate what a posh investment this can be, it might be helpful to offer a new perspective. Too often, individuals see their super as a vault that keeps them separated from their money. Of course, your employees know that they’ll benefit from it in the future, but the farther away they are from retirement, the less they can visualise the importance of their savings.
To counteract this image, you might want to highlight short-term super benefits, like the First Home Super Saver scheme.
A glimmer of magic: Expound upon the mystery of compound interest
To further help your employees reap the long-term benefits of salary sacrifice, make sure they know the importance of slow and steady wins. Without thinking about it, your staff members may assume that their super savings are a static entity: They add money. Then they add more money. Then they add money. That’s all there is to it.
However, salary sacrificing from the earliest stages of their career can actually have a multiplying effect on your employees’ super savings. Once they come to understand the importance of compounding interest for supporting their retirement, they’ll feel like early concessional contributions are a foray into self-serving sorcery.
To put this into perspective, let’s say you have $10,000 in your super and salary sacrifice $50 per week. Compounded monthly at 5.01%, your super will grow to:
- $45,100 in 10 years
- $70,435 in 15 years
- $102,967 in 20 years.
Make sure your employees stay up to date
Periodically, the government will implement changes that impact the effect of salary sacrificing on super savings. Make sure your employees are up to date on the latest alterations.
Starting in January 2020, a new regulatory update went into place. This guideline clarified that employee salary sacrificing cannot be counted toward the super guarantee. In addition, employers are required to calculate the super guarantee based on the employee’s salary prior to making any salary sacrificing arrangements. Together, these guidelines make salary sacrificing an even more indulgent option for employees.
While there are limitations to how salary sacrificing can be used — the total amount of salary sacrifice and super guarantee cannot exceed $27,500 in concessional contributions per year — this luxurious investment is a great opportunity for your employees.
Learn more about the benefits of salary sacrifice.