What is Salary Sacrifice?

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Navigating the best way to structure your pay can make a real difference to your finances over time. For many New Zealanders, one option worth exploring is arranging to receive part of their earnings in a different form from regular wages. This approach can help align your income with your personal and professional goals, whether that’s growing your KiwiSaver balance, obtaining extra leave, or making everyday costs more manageable.
 
Explore how salary sacrifice works in New Zealand and get actionable insights from our experts at Hays.
 

What is salary sacrifice NZ?

Salary sacrifice is when you agree with your employer to receive part of your remuneration as non-cash benefits instead of regular wages. Instead of being paid the full cash amount of your gross salary, a portion is “sacrificed” in exchange for certain benefits such as KiwiSaver contributions, work-related equipment, or extra leave.
 
The key difference is that the sacrificed amount comes from your pre-tax salary, which can reduce your taxable income and potentially help you pay less tax. In some cases, this also increases your disposable income or boosts your retirement savings over time.
 

How does salary sacrifice work in New Zealand?

A salary sacrifice arrangement is a formal agreement between an employee and an employer. The process typically involves:
 
  • Negotiating the benefit: The employer agrees to replace part of your cash wages with a non-cash benefit of similar value.
     
  • Adjusting your salary package: The arrangement is documented so the employee's pay is reduced by the agreed sacrificed salary amount.
     
  • Processing through payroll: The sacrificed amount is deducted from your gross remuneration before PAYE is calculated.
     
  • Receiving the benefit: This could be in the form of employer contributions to your KiwiSaver funds, payment of childcare costs, or other employee benefits allowed under NZ tax rules.

Common types of salary sacrifice arrangements in NZ

Not every expense can be paid this way. The ATO outlines what can be included without triggering extra fringe benefits tax or other additional tax obligations.
 

1. KiwiSaver salary sacrifice

  • By diverting more of your pre-tax income into KiwiSaver, you can grow your retirement savings faster.
  • This may help you reach your savings goals sooner and take advantage of compounding returns.

2. Work-related equipment or tools

  • Items necessary for your role may be provided as part of your salary package, potentially without you paying extra tax.

3. Additional leave

  • You may be able to “purchase” extra annual leave through a salary sacrifice scheme, trading part of your base salary for extra time off.

4. Other benefits

  • Childcare costs may be covered in certain industries if agreed with your employer.
  • Professional memberships, ongoing training, or workplace parking may be included depending on your role and company policy.

Benefits of salary sacrifice

When structured correctly, salary sacrificing can be a valuable perk that offers:
 
  • Pay less tax: Reducing your taxable income can lower the tax rate applied to your earnings, meaning less income is taxed.
     
  • Boosted retirement savings: Additional salary sacrifice contributions into KiwiSaver can grow your long-term wealth.
     
  • Greater employee satisfaction: Flexible salary sacrifice schemes can improve morale by offering benefits that match employee needs.
     
  • Improved cash flow for certain costs: Covering other benefits like training or equipment from pre-tax earnings can be cheaper than paying from after-tax disposable income.

Tax implications and compliance

While salary sacrificing can help you pay less tax, it’s important to understand the tax implications:
 
  • Fringe benefits: Some benefits may trigger fringe benefits tax obligations for your employer.
     
  • Tax deductions and credits: You may still qualify for certain tax deductions, tax credits, or tax offsets, but this depends on your overall income and benefits mix.
     
  • Government benefits: Reducing your net remuneration could affect eligibility for government benefits or assistance.
     
  • Extra tax: If the benefit is not exempt, you might end up with additional costs rather than savings.

Key considerations before starting a salary sacrifice scheme

Before you agree to a salary sacrifice arrangement:
 
  • Understand the rules: Make sure you know how salary sacrifice works in NZ, including tax treatment of different benefits.
     
  • Calculate the impact: Check how it will affect your disposable income and the tax you pay.
     
  • Review the fine print: Ensure your salary sacrifice agreements are documented and clearly outline any additional costs or impacts on entitlements.
     
  • Seek advice: A financial advisor or professional tax advisor can help you determine if the arrangement will result in less tax or a better salary package overall.
Get more career advice and insights from our experts at Hays.
 

FAQs

Is salary sacrifice worth it?

Whether salary sacrificing is right for you depends on:
 
  • Your income level: The higher your gross salary, the more potential benefit from reducing taxable income.
     
  • The benefit offered: Some salary sacrifice schemes provide better value than others.
     
  • Your long-term goals: If you want to grow KiwiSaver funds or secure more leave, salary sacrificing can be a strategic move.
     
  • The employer's perspective: While most employers are open to these arrangements, not all will offer salary sacrifice options.
If structured correctly, salary sacrificing can help you receive remuneration in a more tax-effective way, increasing your take-home pay or delivering valued benefits other than cash pay.
 

What can you salary sacrifice in NZ?

Options vary by organisation and employer’s perspective, but common examples include:
 
  • KiwiSaver contributions above the standard rate
  • Annual leave purchases
  • Work-related equipment or training
  • Childcare costs in some cases
  • Other benefits negotiated in your salary sacrifice agreement