Offering Salary Incentives to Staff

Salary Incentives for Staff: How to Reward Your Team Without Creating Tax, Super or FBT Problems

Staff incentives can be a brilliant way to attract, retain and motivate great employees. But like any good gold strategy, the value is in the structure. A poorly planned incentive can quickly lose its shine through unexpected tax, super, payroll or Fringe Benefits Tax obligations.

Key Takeaways

• Salary sacrifice and salary packaging are commonly used to help employees receive part of their remuneration as benefits instead of cash.
• Bonuses, commissions, allowances, super contributions, gift cards, cars and private expense payments can all have different tax consequences.
• From 1 July 2026, employers must factor in Payday Super when managing staff remuneration and incentive arrangements.
• The super guarantee rate is 12% for 2026–27.
• Salary sacrificed super counts toward an employee’s concessional contributions cap, which is $32,500 from 1 July 2026.
• Non-cash benefits can trigger Fringe Benefits Tax, reportable fringe benefits and payroll tax implications.
• Incentives must still comply with Fair Work rules, awards, agreements and minimum wage obligations.
• The safest incentive plan is one that is documented, costed and reviewed before it is offered to staff.

Why Staff Incentives Matter

Good employees are worth their weight in gold.

For many small businesses, wages are one of the largest ongoing costs. So when you find reliable, skilled and motivated staff, it makes sense to think carefully about how to keep them engaged.

Salary incentives can help with:

• attracting new employees
• improving staff retention
• rewarding performance
• supporting career development
• creating a more flexible remuneration package
• helping employees see more value in their overall employment package

But incentives should not be rushed.

A bonus paid through payroll is very different from a salary sacrificed super contribution. A gift card is different from a work-related laptop. A novated lease is different from a cash allowance. Each option can create different obligations for PAYG withholding, super guarantee, Fringe Benefits Tax, payroll tax and employee reporting.

That is why staff incentives should be treated like a gold mine: valuable when managed properly, but risky if you start digging without a plan.

Salary Sacrifice and Salary Packaging: What Is the Difference?

The terms “salary sacrifice” and “salary packaging” are often used together.

The Australian Taxation Office says salary sacrificing is also known as “salary packaging” or “total remuneration packaging”. In simple terms, an employee agrees to receive less cash salary before tax, and the employer provides benefits of a similar value instead.

Common salary sacrifice or salary packaging options may include:

• additional super contributions
• a novated lease
• a work-related laptop or phone
• professional memberships
• tools of trade
• some work-related training
• certain employer-provided benefits

However, salary packaging is not automatically tax-free or cost-neutral.

The ATO explains that salary sacrificing is a formal arrangement between an employer and employee. To be effective, it should generally be agreed before the employee earns the income being sacrificed.

The Golden Rule: Cost the Incentive Before You Offer It

One of the biggest mistakes employers make is assuming an incentive has no extra cost to the business.

That may be true in some simple arrangements, but not always.

A staff incentive may create extra costs through:

• employer super guarantee
• Fringe Benefits Tax
• payroll tax
• administration fees
• payroll software setup
• Single Touch Payroll reporting
• record keeping
• cash flow timing
• award or agreement obligations

For example, paying an employee’s private mortgage, school fees, credit card bill or personal loan repayment may create an expense payment fringe benefit. The ATO’s employer FBT guidance specifically notes that fringe benefits in salary sacrifice arrangements often include car fringe benefits and expense payment fringe benefits, such as payment of an employee’s loan repayments, school fees, child care costs and home telephone costs.

Before agreeing to any incentive, employers should ask:

• What exactly is being provided?
• Is it cash, super, an allowance, a reimbursement or a benefit?
• Does PAYG withholding apply?
• Does super apply?
• Is there an FBT issue?
• Does it affect payroll tax?
• Does it need to be reported through STP?
• Does it comply with the employee’s award or agreement?
• Has the arrangement been documented before the income is earned?

A shiny reward can quickly lose its polish if the hidden costs are not understood upfront.

Cash Bonuses, Commissions and Performance Payments

Cash bonuses are usually the easiest type of incentive for employees to understand.

They may include:

• annual performance bonuses
• sales commissions
• productivity bonuses
• retention payments
• referral bonuses
• Christmas or end-of-year bonuses

These payments usually need to be processed through payroll, with PAYG withholding applied. They may also attract super, depending on the nature of the payment.

The ATO provides guidance on payments that are considered ordinary time earnings or qualifying earnings for super purposes, including many bonuses and commissions.

For employers, the key point is this: do not treat a bonus as something separate from payroll unless you have confirmed the treatment.

A bonus can feel like a golden reward for employees. For the employer, it must still be reported, taxed and paid correctly.

Super Salary Sacrifice: Valuable, But Watch the Cap

Salary sacrificing into super can be an attractive option for some employees.

It allows the employee to redirect part of their pre-tax salary into super. This may reduce their taxable income and help grow their retirement savings.

However, it is not suitable for everyone.

Salary sacrificed super contributions count toward the employee’s concessional contributions cap. From 1 July 2026, the general concessional contributions cap is $32,500.

This cap includes:

• employer super guarantee contributions
• salary sacrificed super contributions
• personal deductible super contributions

If an employee exceeds their cap, they may face extra tax consequences.

Employers also need to remember that salary sacrifice is separate from compulsory super guarantee. Employees cannot use salary sacrificed super to reduce the employer’s compulsory super obligations.

Payday Super: A Major 2026 Update for Employers

From 1 July 2026, Payday Super applies to employee earnings paid from that date.

The ATO says that, from 1 July 2026, employers must pay super guarantee for each payday. For most ordinary pay cycles, super must generally be received by the employee’s fund within 7 business days after payday.

This is a major change for employers who previously managed super on a quarterly cycle.

For 2026–27, the super guarantee rate is 12%.

This means incentive arrangements should be reviewed carefully. If you offer bonuses, commissions or additional super contributions, your payroll systems and cash flow need to keep up.

Payday Super makes timing more important than ever.

Think of it like refining gold: the value is not just in what you pay, but in when and how it is processed.

Fringe Benefits Tax: Where Incentives Can Become Expensive

Fringe Benefits Tax, or FBT, is one of the biggest traps in staff incentives.

FBT can apply when an employer provides a non-cash benefit to an employee or their associate because of their employment.

Examples may include:

• cars
• gym memberships
• entertainment
• private health costs
• school fees
• mortgage or loan repayments
• private travel
• gift cards
• meal entertainment
• housing costs
• certain expense reimbursements

The ATO explains that employers pay FBT on certain benefits provided to employees, their family or other associates.

The FBT rate for the 2026–27 FBT year is 47%.

This does not mean every staff reward creates FBT. But it does mean every non-cash benefit should be checked before it is offered.

Minor Benefits: The Under-$300 Rule Is Not a Free Pass

Many employers have heard of the “under $300” minor benefits rule.

This can be useful, but it is often misunderstood.

The ATO says a minor benefit may be exempt from FBT where it is both less than $300 in notional taxable value and unreasonable to treat it as a fringe benefit.

This means the benefit must generally be minor, infrequent and irregular.

A one-off small gift may qualify. A regular monthly gift card may not.

The gold nugget here is simple: “under $300” does not automatically mean “no FBT”.

Work-Related Items: Laptops, Phones and Tools

Some work-related items can be FBT exempt if they meet ATO conditions.

These may include:

• portable electronic devices
• computer software
• protective clothing
• briefcases
• tools of trade

The ATO says work-related items can be exempt from FBT where they are mainly used for work purposes. However, there are limits, including rules around providing more than one substantially identical item in the same FBT year.

This can make work-related equipment a practical incentive, especially where it helps the employee perform their role better.

It is also usually easier to justify than paying private expenses.

Reportable Fringe Benefits and Employee Impacts

Some fringe benefits may also need to be reported on the employee’s income statement.

The ATO says that if an employee receives certain fringe benefits with a total taxable value of more than $2,000 in an FBT year, the employer reports the grossed-up amount.

Reportable fringe benefits do not increase the employee’s taxable income directly. However, they can affect income tests for things such as:

• Medicare levy surcharge
• private health insurance rebate
• child support
• Centrelink entitlements
• HELP or study loan repayments
• some tax offsets

This is why employees should understand the full effect of a salary package before agreeing to it.

Payroll Tax: Do Not Forget the State Rules

If your business is registered for payroll tax, or close to the payroll tax threshold, incentives may have state payroll tax consequences.

For Victorian employers, the State Revenue Office says certain fringe benefits must be included in wages declared for payroll tax. Common examples include cars, housing costs, school fees, meals and entertainment.

This is especially relevant for growing businesses.

A benefit that looks affordable from an income tax perspective may still affect payroll tax calculations.

Fair Work and Award Compliance Still Apply

Staff incentives should never be used to avoid minimum employment obligations.

Before introducing bonuses, commissions, annualised salaries or salary packaging, employers should check the applicable award, enterprise agreement or employment contract.

Fair Work guidance explains that some employees can be paid annualised wages or salaries, but awards and agreements may set rules around how these arrangements work.

Fair Work also provides guidance on piece rates and commission payments.

The practical message is this: incentives should sit on top of a compliant wage structure.

They should not quietly replace overtime, penalty rates, allowances, leave loading or other entitlements unless the arrangement has been properly structured and documented.

Non-Cash Incentives That May Be Worth Considering

Not every incentive needs to be a cash bonus.

Some lower-risk options may include:

• professional development
• training courses
• flexible work arrangements
• career progression plans
• paid study support
• work-related equipment
• recognition programs
• mentoring
• additional leave arrangements
• wellbeing initiatives

Business.gov.au notes that staff development and training can improve job satisfaction and help a business.

Business.gov.au also notes that flexible working arrangements can support productivity, morale, job satisfaction, reduced stress, lower absenteeism, reduced staff turnover and attraction of new employees.

These incentives may not always deliver an immediate tax advantage, but they can be powerful retention tools.

Sometimes the best gold is not a bigger pay packet. It is a workplace where good people want to stay.

A Simple Incentive Checklist for Employers

Before offering a staff incentive, work through this checklist:

1. Identify the exact type of incentive.
2. Confirm whether it is cash, super, an allowance, a reimbursement or a benefit.
3. Check PAYG withholding.
4. Check super guarantee treatment.
5. Check FBT treatment.
6. Check reportable fringe benefit obligations.
7. Check payroll tax impact.
8. Check Fair Work, award and employment contract obligations.
9. Document the arrangement before it starts.
10. Review the arrangement each financial year.

This checklist can help protect your business from costly surprises.

It also helps employees understand what they are really receiving.

Gold Nugget: The Best Incentives Are Clear, Compliant and Valued

A good staff incentive should do three things:

• It should be valuable to the employee.
• It should be affordable for the employer.
• It should be compliant from a tax, super and employment law perspective.

When those three pieces line up, staff incentives can become a golden tool for retention and performance.

When they do not, the business may end up with unexpected FBT, super, payroll tax or Fair Work issues.

Final Thoughts

Offering salary incentives to staff can be a smart way to reward performance and strengthen your team.

But the structure matters.

A bonus, salary sacrifice arrangement, novated lease, gift card, laptop, allowance or training package can each create different obligations. The right option depends on your business, your employees, your payroll system and your compliance position.

Before you offer a new staff incentive, take the time to check the tax and payroll impact first.

It is much easier to polish the plan before it is offered than to clean up the dust later.

Need Help Structuring Staff Incentives?

If you are thinking about offering bonuses, salary sacrifice, salary packaging or other staff benefits, we can help you understand the tax, super, FBT and payroll implications before you commit.

Contact DJ Grigg Financial to review your options and structure staff incentives with confidence.

Let’s help you reward your team without creating unnecessary compliance headaches.