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A salary sacrifice arrangement is an arrangement between an employer and an employee, where the employee agrees to receive a reduced salary or wage in return for some other form of non-cash benefits of equal cost to the employer.

The non-cash benefits provided may include pre-tax superannuation contributions, the provision of a motor vehicle, a laptop or similar portable computer, car parking fees, payment of school fees or the payment of membership fees and subscriptions. Effective salary sacrifice arrangement is defined by the .

Under an effective salary sacrifice arrangement

• the employee pays income tax on the reduced salary or wage
• salary sacrificed (pre-tax) superannuation contributions are classified as employer contributions (not employee contributions) and
• the employer may be liable to pay fringe benefits tax on the fringe benefits provided.

For payroll tax purposes, under an effective salary sacrifice arrangement

• the reduced salary or wage on which the employee pays income tax is treated as taxable wages
• the pre-tax superannuation contribution classified as the employer contribution is taxable and
• the taxable value of a benefit under the (Cth) is grossed-up by the Type 2 factor as shown on the fringe benefits tax (FBT) return.

If the benefit provided to the employee is exempt from FBT, payroll tax is payable only on the reduced salary on which the employee pays income tax, not the amount sacrificed for that benefit.

Some employees agree to make regular donations to charitable organisations of their choice under a 'Workplace Giving' program. This arrangement is not considered a salary sacrifice arrangement.