Salary sacrifice under Modern Awards

Salary sacrifice is not mentioned in some Modern Awards. Are employees still allowed to enter salry sacrifice arrangements in these situations and if so, what conditions have to be met?

Q: An employee has approached their Head Teacher about entering into a salary sacrifice arrangement (SSA).

The arrangement will mean the employee will be paid less than the minimum award rate of pay for the relevant classification in the applicable modern award (Educational Services (Teachers) Award 2010).

The employee has approached us previously about a SSA but, upon investigation, the (then) applicable award did not make provision that allowed an employer and an employee to enter into a SSA.

The employee has since received advice from their accountant that salary sacrifice is now permissible provided a number of criteria are met.

We have looked at the modern award and it does not make provision for a SSA.

While the company is amenable to entering into a SSA we do not want to breach the minimum rates of pay provision of the modern award.

Is a SSA legally permissible under a modern award when the award is silent on salary sacrifice?

A: The answer is yes, subject to one of several conditions being satisfied.

An employer and an employee can lawfully agree to a SSA provided that one of the conditions of s324(1)(a)–(d) of the Fair Work Act 2009 is satisfied and the arrangement does not involve a contravention of s325 or s326.

A SSA can be entered into by written agreement of the parties regardless of whether the applicable modern award contains a provision allowing a SSA.

This interpretation was confirmed in a matter heard last year before Fair Work Australia (FWA).


Authorised deductions

Under s324(1)(a)–(d) of the Act, one of the following conditions must be satisfied for the SSA to be lawful:

• the deduction is authorised in writing by the employee and is principally for the employee’s benefit; or
• the deduction is authorised by the employee in accordance with an enterprise agreement; or
• the deduction is authorised by or under a modern award or a FWA order; or
• the deduction is authorised by or under a law of the Commonwealth, a state or a territory, or an order of a court.

In this case, in the absence of a specific provision in the applicable modern award, provided the deduction is authorised in writing by the employee, entering into a SSA is permitted because it is principally for the employee’s benefit.

Sections 325 and 326 refer to deductions from an employee’s wages, the nature of which do not relate to a SSA.