Many small businesses struggle to attract and retain skilled and competent staff, especially when they are unable to compete directly against larger organisations that can afford to pay higher salaries. There is a way to overcome this disadvantage, but small business has not embraced it to any great degree, largely because it is perceived as being too complex.
The method is salary packaging or as it is more commonly known, salary sacrificing. It is common in larger organisations with human resource departments and dedicated payroll officers trained in its administration. For a small business, the payroll is often prepared by the same person who does the accounts, attends to customer queries and upgrades the office software. Adding salary packaging to an already crowded job description is not on the agenda.
Salary packaging allows employees to structure their income by having certain expenses paid for out of their pre-tax salary. Almost any expense can be included such as mortgage payments, school fees, insurance premiums and motor vehicle expenses, but there are rules around the different types of expenditure that fall broadly into three categories – fringe benefits, exempt benefits and superannuation.
Beware of FBT Liabilities Created in the Process
When Affinity Accounting Plus assists their clients with salary packaging, they alert them to the fringe benefit liability that can be created when expense payments are included in a salary package. Some exempt benefits can be included, but by far the most popular item is superannuation. It is not subject to FBT and is tax deductible to the employer, so it benefits both employer and employee. Care must be taken, however, not to exceed the contribution cap of $25,000 for people aged 50 and over.
The timing of the salary packaging arrangement is important as is including agreement terms in the employment contracts. Fringe Benefits tax implications, the treatment of payroll tax and work cover, how the information is displayed on the employee PAYG Payment Summaries and the effect on the employer paid Superannuation Guarantee all need careful consideration.
Complex Administration can be Out-Sourced
For small employers who want to take advantage of the benefits of salary packaging, there are highly professional accountants who can provide assistance. Expert advice from Affinity Accounting Plus will help employers structure their salary packaging arrangements, and if they lack the capacity to handle the administration in-house, it can be outsourced.
Losing badly needed staff to corporations is a thing of the past for those businesses that have chosen to seek professional help. Salary packaging can be complex but it should also be available to every business. Visit www.affinityplus.com.au for more services.
