Introducing the Phenomenon of Salary Packaging

Salary packaging is comparatively a new phenomenon and it proves very helpful in the present situation of slack economy. It allows getting employees adequate compensation without burdening the employers much.

Salary packaging is a tool with the help of which the employees sacrifice some parts of their future salary benefit in order to receive some forms of other benefit. Some of the benefits which are received by the employers are some kinds of fringe benefits or some superannuation benefits. These fringe benefits generally have the provision of buying a car in which the employer either pays for it directly or reimburses the amount spent on it by the employer.

Some of the major benefits of salary packaging are as follows:

In the first place the tool of salary packaging is used by most of the organisations as it proves beneficial to the employees as well as the employers. With the help of this tool the employees are able to have more disposable income in their hands and as far as tax is concerned the burden of the employees' decreases to a large extent. On the part of the employers the tool of salary packaging proves beneficial because they are able to retain their employees and it also has a lower payroll cost on the part of the employers.

One thing which should be kept in mind is that if an employee gets any kind of Fringe Benefits from the employer due to salary packaging it involves tax known as the Fringe Benefit Tax.

Generally the Fringed Benefits Tax is provided by the employers based on the grossed up taxable value of all the benefits that is given to an employee. In order to get up the grossed up amount one needs to multiply GST-inclusive taxable value of the fringe benefit along with the proper gross up factor that is needed.

An important thing which one should remember as a part of salary packaging is that amount which is made evident in the pay document of the employee should be shown in their income tax returns as well. On the other hand the non-grossed up value is provided in the form of some of the other government benefits, allowances for the family and also youth allowances.

The fringe benefits included in the salary packaging are exempt fringe benefits and the concessionally valued fringe benefits.

When an employer is deciding on the components of the salary packaging it is necessary that fringe benefits are given some importance. The fringe benefits have a taxable value and it can be either reduced or eliminated with the help of salary packaging. It is also recommended that an employer does not consider the ordinary benefits as one is deciding on a package. It may prove disadvantageous to the employer.

During the very first time an orgainsation may find the phenomenon of salary packaging as a complex one but in reality that is not the case because it has a lot of financial and tax related benefits. So in times companies can contact organisation who provide these services.