Woolworth's recent announcement of its salary sacrificing
scheme, which will generate millions of dollars in sales is just
the tip of the iceberg, the big bonus for employers and employees
lies under the surface.
Woolworths' scheme allows permanent staff to use pre-tax
dollars to spend up to $1,000 at Woolworths outlets before 9
January 2009 by salary sacrificing the amount.
How does it work under the surface?
These employee benefit practices became viable after legislative
changes to Fringe Benefits Tax came in affect from 1 April 2007.
The taxable value of an employee's fringe benefit can be
reduced by up to $1,000 in respect of "in-house" fringe
benefits (this is an increase from the previous reduction of
Upon accepting the salary sacrifice arrangement and making the
expense reimbursement of $1,000, the taxing point switches from
PAYG to the FBT system.
For the employee, the FBT system eliminates the requirement to
withhold PAYG and for the employee to declare the sacrificed amount
For the employer, the expense payment comes with the entitlement
to claim an Input Tax Credit (where applicable), and the FBT
taxable value is reduced $0 for payroll tax, workers compensation
and superannuation for the first $1,000 of in-house expense
The following example shows how the net savings of $350 can be
achieved for each employee where $1,000 of purchases are salary
Input Tax Credit
Payroll Tax Savings
(0 - 46.5%)
Minus administration costs
* Assuming a salary of $30,000 to $75,000
** Excluding possible superannuation savings for the
What types of companies would benefit?
Any company which has products or services that can be purchased
by employees benefit from this type of program. This includes
retailers, manufacturers and some service providers.
Setting up your own program
In setting up your own program, you need to consider:
1. The balance between employer and employee benefits
How these savings are shared between an employer and employee is
a matter of balance between the desire to reward employees and
derive sales (please refer to the brochure entitled 'Moore
Stephens Employee Benefits').
A typical solution rewards employees for:
Past purchases in year one - the program is a
recovery exercise to drive employee participation and savings.
Changing their buying behaviour in year two onwards
by limiting expense reimbursements to current year purchase at the
employer or associated entities.
2. The impact on any staff discounting
The decision on the saving split between employer and employee
can also impact the staff discounting arrangements. Given the
employee receives a portion of the savings, the employer may:
Choose to retain a greater margin via the reduction
or elimination of staff discounting; or
Offer the same staff discounts that further reduce
the cost of purchases for employees.
3. How the program will be administered
Your internal resources are valuable and administering the
program can take time – setting up the system in a way
that simplifies the process for employees and payroll;
communication to employees; co-ordination between payroll, tax and
HR and appropriate software to process and approve the claims.
Outsourcing the management of the scheme will save internal
resources, time and money, whilst increasing the participation rate
of employees by providing a simple process.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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3.Courts are imposing larger fines and compensation for non-economic loss for contraventions of the Fair Work Act.
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