Whether youve just started a new business or youre simply an employee in a new job trying to understand employee benefits and how they relate to your tax obligations, this post is designed to answer some of the questions you might have and clear up exactly what employee benefits are, what the advantages are and how to make them work for you. Accountants and other tax professionals can definitely help you further with your specific situation, and it is a good idea to seek advice in order to make the most of your benefits.
What Are Employee Benefits?
Employee benefits, put simply, are any non-wage compensation an employee receives on top of a cash salary. Things like health insurance, discounted products, a work car, phone or salary sacrificing agreement are all employee benefits. These are often called fringe benefits or perks and are non-monetary ways that an employer can make a position within the company more attractive.
Salary Sacrificing is an agreement an employee enters into with their employer which sees a portion of their total wages being used in certain areas specified by the employee. For example, an employee can choose to have a insurance premiums, a certain amount of rent, a leased vehicle repayments or credit card repayments taken care of by his or her employer under a salary sacrificing agreement. These are most popular in not-for-profit organisations as the salary sacrificed portion of wages is not taxed.
According to the ATO, there should always be a written agreement when it comes to salary sacrificing:
It is advisable that you and your employer clearly state and agree on all the terms of any salary sacrifice arrangement. The contract is usually in writing, but may be a verbal one. If you enter into an undocumented salary sacrifice arrangement, you may have difficulty establishing the facts of your agreement. Subject to the terms of any contract of employment or industrial agreement, employees can renegotiate a salary sacrifice arrangement at any time. Where you have a renewable contract, you can renegotiate amounts of salary or wages to be sacrificed before the start of each renewal.
It is important to understand employee benefits regardless of whether you are an employer or an employee. A tax accountant can advise you as to how to make the arrangement work best for both parties, and can help you devise a mutually beneficial program.