Salary Sacrifice for 2021
Charlie Gilichibi
CEO | Director | Catalyst for Change - provoking thought & inspiring action
What is a salary sacrifice scheme?
Salary sacrifice is when you agree to exchange part of your salary with your employer so they can provide you extra non-cash benefits. These non-cash benefits would come out from your basic gross annual salary before tax, and not from your net salaries after tax.
This scheme effectively reduces the overall taxes you might otherwise pay.
How does a salary sacrifice work?
The idea behind this is quite simple. You give up part of your salary and, in return, your employer gives you a non-cash benefit, such as payment of school fees paid direct to the schools of your children from prep up to tertiary education, increased superannuation contributions, purchase of leave travel, payment of mortgages or rental for residential accommodation. Once you accept a salary sacrifice, your overall pay is lower, so you pay less tax.
How much can I do salary sacrifice?
The PNG Income Tax Act, rules and regulations prescribe up to but not exceeding 40% of basic gross annual salaries/wages can be salary sacrificed.
What can I do salary sacrifice for?
1· School fees of children from prep to university or tertiary institutions and colleges
2· Increase voluntary contributions
3· Rent residential accommodation or pay bank loans (mortgages)
4· Leave fares paid directly by employer or through arrangements with travel agents
Can I see my employer to effect salary sacrifice for 2021?
Yes you can. BUT…
Firstly, your employer needs to have a salary sacrifice policy in place, vetted by IRC.
Secondly, your employer needs to include an addendum or simply a salary deduction form to every employee contract, accurately capturing the details of salary sacrifice including terms and conditions, with diligent assessments that it complies with the rules and regulations and approvals from relevant authorizing officers including the head of HR and CEO.
Thirdly, if your employer doesn’t have the expertise in-house to kick-start a salary sacrifice program for your organization, best they engage with one of the BIG 4 Accounting firms or a reputable local accounting firm to prepare a salary sacrifice policy, provide guidance and training on how to implement it for 2021.
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1 年Question... If I start Salary sacrificing for school fees, does the employer pay the school fee immediately after receiving the invoice or does it have to be accrued before it is paid ?? It's confusing because some companies pay right away and some accrue it before paying it. What is supposed to happen in the case of school fee salary sacrificing ??
Teacher at St. Josephs International Catholic College
4 年Thanks for sharing this vital information.
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4 年Thanks for sharing
Lands, Societal and Government Affairs Professional
4 年Thank you for sharing. I have two questions; 1. Is it the employers prerogative to exclude sacrifice for prep school and ; 2. limit housing to only rentals and not mortgage ??
Power Station Technician at St. Barbara Limited
4 年It is a TAX BENEFIT to tax payers. For superannuation, we can sacrifice our salary up to 6.6 % on top of compulsury 8.4% employer contribution. Standard home loan repayment, family home rentals and tickets for family travel. Its all captured under the income tax act. Its up to us to liaise with IRC for their guidance. As long as the scheme benefit the employees and approval obtained from IRC. It is just like the salary sacrifice scheme for school fees. It will not cost the company, its employees tax benefit. The company only need to come up with an understanding with IRC, Banks, Nasfund to develop the scheme for employees to benefit from the income tax act.?