Directing Growth

Is your salary packaging on the money?

Business owners overlook salary packaging strategies at their peril.

Not only should such employee benefits programs help a business attract and retain the best talent, but they are also a crucial means of keeping a business’s overall wages bill under control.

"Salary packaging is often seen as something for employees, but fundamentally employers shouldn’t be doing it if it isn’t delivering a benefit to them as well," says Simon Ellis, senior tax adviser at Smartgroup, a financial services and salary packaging consultancy.

Find the right provider
"Getting your vehicle packaging right is critical to getting your salary packaging right overall," he says.

It is crucial to find a provider with a strong structure and a range of vehicle-leasing choices, says Ellis. And be on the alert for unreasonable fees.

While cars, laptops and superannuation are the most common salary packaging assets, others range from airline lounge membership and car parking to insurances and childcare. Relocation expenses and remote area housing can also apply under certain circumstances.The emphasis, according to Ellis, should always be on trying to stretch the value of employees’ pay without affecting the business’s bottom line.

"So from an employer’s point of view it’s a way of delivering a lot more bang for their remuneration buck."

Slight improvements in super
The recent Federal Budget did not include any significant salary packaging changes, although employees aged under 49 years can now salary package superannuation up to a value of $30,000 (a $5000 rise) while those aged over 49 can package up to $35,000 (the previous cut-off age for the higher limit was 59).

High-income earners subject to the new deficit levy may also be able to reduce tax through salary packaging for a short period because of a gap between the July 1 start of the 2 per cent deficit tax and the April 2015 rise to 49 per cent of the fringe benefits tax rate. While there is a "technical opportunity" to take advantage of this situation, Ellis says he is not aware of anyone who either has, or is planning to set up a salary packaging benefit to exploit it.

Managing expectations
Ellis advises employers to be conscious of employee expectations with salary packaging. For instance, prospective new staff will often want to bring across salary packaging features from their present job, especially with popular items such as a novated lease on a car.

"It can be a deal-breaker if the employer is unable to incorporate it into the employee’s pay," Ellis says.

While salary packaging represents a great opportunity for employers to attract staff and control wage costs, Ellis says it can also cause great reputational damage if it is mismanaged.

"Poorly delivered salary packaging is worse than no packaging at all," Ellis says.
In other words…
    •    Salary packaging must be carefully managed to deliver benefits to both the employer and employees.
    •    The aim of your packaging strategy should be to improve remuneration without affecting the business bottom line.
    •    Managing employees’ expectations is crucial.

This article was originally published in the Australian Institute of Company Director's Business Owners Resource Centre.

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Published on: Monday, September 29, 2014