Many employees have begun to get very interested in the concept of salary sacrificing. They understand that this type of setup is a great way for them to save money on their taxes, and to acquire some items that they need while they are at it.

While salary sacrificing hasn’t yet made its way to the United States, it is a pretty common practice across Australia. So the hope is that as more interest is peaked in this tax-saving concept, maybe the practice will begin to extend to other countries and the U.S. as well.

Either way, if you are one of the many people who have been interested in salary sacrificing (whether it is an available option to you right now or not), there are probably still many questions that you have left unanswered.

So to help deepen your understanding a bit, here is a quick guide to salary sacrificing.

Salary Sacrificing Explained
You’ve probably heard that salary sacrificing is a great way to save money on taxes. But that may be all you know about it. So why don’t we start with what salary sacrificing actually is. Salary sacrificing is a benefit that many employers offer to their employees to help them lease or purchase certain items, like mobile phones, computers, or even cars, using pre-tax earnings.

How Salary Sacrificing Works
The salary sacrificing model is a three-way agreement between the employer, the employee, and the company that is selling or leasing the said item. The employee will go to the company to purchase or lease the item, or the employer will go to the company to purchase/lease the item on the employee’s behalf. The employee agrees to take on the full responsibility of the item; they are the ones who will own the item. But the company will send the invoice(s) for the item to the employer instead of straight to the employee. The employer will deduct those payments out of the employee’s paycheck and make the payments to the selling company.

Tax Savings for Employees
The beauty behind the salary sacrificing model is that the deductions and payments for the item(s) are made using pre-tax earnings. So the employee doesn’t have to pay taxes on any of the payments made through the salary sacrificing setup. Fleetcare, a salary sacrifice car and fleet management company, has said that “Salary sacrificing is seen simply as a mechanism which offers tax paying workers a way of buying selected items and services while reducing their taxable income.”

Many employees want to purchase these types of items for themselves. They also want ways to save as much money as they can on their taxes. So with the salary sacrificing model, they are able to combine the two: they are able to purchase items that they want, while using those purchases to reduce their taxable income. I’d say that’s a win-win.

Nicole has been blogging about business for several years. She loves helping companies find out more ways to help their employees.

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This entry was posted on Thursday, March 21st, 2013 at 9:19 am and is filed under Career, Career Coaching, Job Search, Salary Negotiation. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.