Salary sacrifice lets you take certain benefits in place of cash salary. Because your taxable salary is lower, you pay less PAYE income tax and ACC earner's levy on the sacrificed amount. Whether the sacrifice actually puts you ahead depends on what you are giving up the salary for. Extra KiwiSaver contributions have a clean tax advantage. Health insurance and other benefits have a more nuanced outcome. This calculator models each item you want to sacrifice and shows the genuine net position in dollars.
Enter your salary and the benefits you want to sacrifice, then click Calculate Sacrifice
Salary sacrifice is an arrangement where you agree with your employer to take a lower gross salary in exchange for receiving certain benefits. Because your taxable income is reduced by the sacrifice amount, you pay less income tax and less ACC earner's levy. This difference is the tax saving from the arrangement.
Whether the sacrifice puts you ahead financially depends on what benefit you receive in return and whether you would have paid for that benefit anyway. If your employer contributes extra money into your KiwiSaver in place of salary, you gain the full amount in your retirement fund while saving the ACC levy on the sacrificed salary. If you sacrifice salary for health insurance, you save income tax and ACC on the premium amount and receive the same insurance cover you might otherwise have paid for from after-tax income.
Sacrificing salary into additional employer KiwiSaver contributions is the most mathematically transparent form of salary sacrifice in New Zealand. The employer contribution is subject to ESCT (Employer Superannuation Contribution Tax), which is calculated at rates closely matching the income tax brackets. For most employees, their ESCT rate equals their income tax rate.
This means the tax treatment of the money going into KiwiSaver mirrors what you would have paid on that salary as income tax. The genuine advantage is that KiwiSaver contributions are not subject to the ACC earner's levy. For every $1,000 sacrificed into KiwiSaver, you save approximately $17.50 in ACC levy that you would have paid on the cash salary equivalent. This might sound modest, but on a $10,000 annual sacrifice that is $175 per year of real cash advantage, growing the KiwiSaver balance by the same amount you would have received in cash after tax.
The fund also continues to earn investment returns on the full pre-ESCT amount, compounding over time.
Employer-provided health insurance, income protection insurance, and similar benefits are fringe benefits under New Zealand tax law. Your employer is required to pay Fringe Benefit Tax (FBT) on these benefits at the applicable rate. This is an employer cost, not a personal tax for you, but employers factor FBT into the total cost of any packaging arrangement they offer.
From the employee perspective, the benefit of having health insurance through salary sacrifice rather than buying it personally is clear: you save income tax and ACC on the premium amount. If you would have bought the same insurance from after-tax income anyway, the sacrifice arrangement means the insurance effectively costs you less in equivalent pre-tax salary terms.
For example, health insurance costing $3,000 per year bought from after-tax income on a 33% marginal rate requires approximately $4,478 of pre-tax salary to fund ($3,000 divided by 0.67). Through salary sacrifice, you only reduce your salary by $3,000. The saving is $1,478 in equivalent pre-tax terms, or approximately $1,042 in real after-tax cash.
Some employers are unwilling to offer salary sacrifice arrangements for fringe benefits because of the administrative complexity and cost of FBT. Others absorb the FBT cost as part of their total remuneration commitment, particularly for benefits like health insurance that are provided to all staff regardless.
If your employer currently provides health insurance and you sacrifice salary to contribute to the cost, the FBT is typically already accounted for in their fringe benefit return. If you are asking your employer to introduce a new benefit specifically for a salary sacrifice arrangement, they will need to factor in the FBT cost.
This calculator shows your perspective as the employee. For the complete picture including employer FBT obligations, speak with your employer's payroll team or an accountant.
Not everything can be sacrificed. Cash salary itself cannot be deferred indefinitely through salary sacrifice. Employee KiwiSaver contributions, student loan repayments, and child support obligations are calculated on your pre-sacrifice salary in most cases. The arrangement also needs to be a genuine variation to your employment agreement, not a retrospective adjustment, to be accepted by IRD.
ACC earner's levies and student loan repayments are calculated on the basis of salary before salary sacrifice for some purposes, though the taxable income figure used for income tax is the post-sacrifice amount. Speak with your employer and if needed a tax agent to confirm the specific treatment that applies to your arrangement.
If you sacrifice salary to receive additional employer KiwiSaver contributions, the employer contribution goes directly into your fund. Your regular employee contribution continues to be calculated on your contracted salary (which may be the pre-sacrifice amount depending on how your agreement is structured). Check your employment agreement carefully.
Yes, but vehicle benefits are complex from a FBT perspective. FBT on motor vehicles is typically calculated using either the tax value method or the cost price method. The tax saving depends on how much personal use the vehicle has and how FBT is calculated. Get specific advice from an accountant before entering into a vehicle salary sacrifice arrangement.
Student loan repayments are generally calculated on your net taxable income. Because salary sacrifice reduces your taxable income, your automatic student loan deductions through PAYE will also reduce. This means a portion of the tax saving from sacrifice flows through as reduced student loan repayments rather than increased take-home pay. The net effect depends on the specific arrangement.
No. Salary sacrifice arrangements are entirely voluntary for employers. Your employer must agree to vary your employment agreement to include the sacrifice component. Some employers actively promote packaging as part of their remuneration strategy; others do not offer it. There is no legal entitlement to salary sacrifice in New Zealand employment law.
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