Salary Packaging for Contractors
Salary packaging lets eligible contractors paid through PayMe Australia pay certain expenses from pre-tax income through payroll instead of from their bank account after tax. Because the packaged amount is taken before PAYG tax is calculated, it reduces the wage the contractor is taxed on — the actual outcome depends on the expense, the contractor's rate and their circumstances. Eligible salary sacrificing and packaging is included in the standard PayMe fee.
What is salary packaging?
Salary packaging — also called salary sacrificing — is an arrangement where part of your pay is applied to an approved expense before income tax is calculated, rather than paid to you as cash and spent afterwards.
Normally you are taxed on your whole wage and then pay for things out of what's left. With salary packaging, an eligible expense comes out first, so the wage PayMe applies PAYG withholding to is lower. Nothing is hidden: the packaged amount appears as its own line on your payslip.
How does salary packaging work through PayMe payroll?
Salary packaging only works through payroll, because payroll is where PAYG withholding is calculated. That is why it is available to PayMe contractors who are employees of a recruitment company, and not to someone invoicing through their own ABN.
PayMe identifies what you are eligible to package, keeps the arrangement ATO-compliant, and sets the deduction up in the pay run. Claims are submitted using the online salary sacrifice claim form in the Contractor Portal, and the arrangement is put in place before the pay it applies to.
- Additional superannuation contributions, within the concessional contributions cap.
- Work-related expenses that you have already paid and are claiming the pre-tax benefit on, including portable electronic devices used for work.
- Novated lease payments for a vehicle, arranged fee-free through Alliance Leasing.
Salary sacrifice claim forms and the super sacrifice agreement live in the Contractor Portal.
Example: paying an expense before tax vs after tax
Take a contractor with a $500 work-related expense they have already paid for. Paid the ordinary way, that $500 comes out of money they have already been taxed on — they had to earn more than $500 of wage to be left with $500 in the bank.
Packaged through payroll, the same $500 is applied before PAYG withholding is calculated, so the wage PayMe taxes them on is $500 lower for that pay. The difference is not a bonus payment — it is the tax that would otherwise have been withheld on that portion of the wage. How much that is worth depends on your marginal tax rate and your total income for the year.
See what salary packaging could look like on your payslip: the Example Payslip calculator shows two payslips side by side — one with packaging, one without — using the current ATO PAYG withholding tables.
Why do contractors use salary packaging?
Permanent employees at large Australian employers have had access to packaging for years. Contractors often assume it is not available to them because they move between placements. Through PayMe it stays in place while you are paid by PayMe, even as your placements change.
The most common reasons contractors package: putting more into super while they are on a good rate, dealing with a work-related expense they have already worn, or bundling vehicle running costs into one deduction instead of a dozen separate bills.
Salary packaging changes when tax is calculated, not whether you owe tax. It is not financial or tax advice, and outcomes vary — if your situation is complex, speak with your accountant or a licensed adviser before entering an arrangement.
Salary packaging FAQs
Can contractors salary package?
Yes, where they are paid as an employee through payroll. Contractors engaged as casual labour-hire employees of a recruitment company and paid by PayMe can salary package eligible expenses. Someone invoicing through their own Pty Ltd or ABN cannot, because there is no payroll withholding to package against.
Does salary packaging reduce taxable income?
A compliant salary packaging arrangement reduces the wage PAYG withholding is calculated on for that pay, because the packaged amount is applied before tax. The overall effect on your tax position depends on the expense type, your marginal rate and your total income for the year.
What expenses can PayMe contractors salary package?
The arrangements currently offered through PayMe are additional superannuation contributions within the concessional cap, work-related expenses you have already paid (including portable electronic devices used for work), and novated lease vehicle costs. PayMe confirms your eligibility before setting the deduction up.
Is salary packaging the same as salary sacrifice?
In everyday use, yes. Salary sacrifice usually describes the act of giving up part of your pay before tax; salary packaging describes the overall arrangement. PayMe uses the terms interchangeably.
Can I salary package and have a novated lease?
Yes. A novated lease is itself a form of salary packaging, and it can sit alongside other arrangements such as additional super contributions. PayMe contractors get novated leasing fee-free through PayMe's sister company, Alliance Leasing.
Novated leasing for contractorsWill salary packaging change my take-home pay?
Yes — your payslip will show the packaged amount as a separate line, a lower wage that PAYG is calculated on, and therefore less tax withheld. Whether the cash in your bank goes up or down depends on what you are packaging: an expense you have already paid returns the tax benefit to you, while packaging extra super moves money into your fund instead of your bank account.
Compare example payslipsFurther information
This page explains how PayMe processes payroll. For the underlying rules, see the official sources below. Nothing on this page is personal tax or financial advice.
Related pages
Not sure which rate or salary packaging options apply to you? Talk to the PayMe team.
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