APPENDIX 4 SALARY SACRIFICE
Changes in the nature of employee remuneration in recent years led to a review of ABS measures of employee remuneration, to ensure that those measures were still relevant. Of particular interest had been the increase in the use of salary sacrifice arrangements, where pre-tax salary is exchanged for other benefits.
The outcomes of this review were presented in Information paper: Changes to ABS Measures of Employee Remuneration (cat. no. 6313.0) which was released on 14 November 2006. The changes outlined in the information paper mean that for the 2005-06 Survey of Income and Housing (SIH), all amounts salary sacrificed are to be included in the estimates for wages and salaries (and in estimates of income at higher levels of aggregation).
Prior to the 2003-04 combined Household Expenditure Survey (HES) and Survey of Income and Housing (SIH), respondents in SIH were asked a set of income questions which did not explicitly guide respondents on the treatment of salary sacrifice arrangements. Some respondents may have reported these amounts indistinguishably when reporting wages and salaries, others may not have included these amounts.
In the 2003-04 HES and SIH surveys, while respondents were still asked the long standing income questions, they were also asked follow-up questions about any salary sacrifice arrangements that they had in place, and whether the amounts they had salary sacrificed had been included in their responses to the long standing income questions. Two-thirds of the total amount that was separately reported as salary sacrifice in 2003-04 had been included in respondent answers to the long standing question wording. In aggregate terms the value of salary sacrifice arrangements that had not been included in response to the long standing income questions represented less than 1% of total reported wages and salaries, and a little over one half of one percent of gross household income.
The published summary results from the 2003-04 SIH and HES collections maintained the time series measures of wages and salaries compiled using responses to the long standing income questions. However, the amounts of salary sacrifice that were reported in those surveys were included on the Confidentialised Unit Record Files (CURFs) that were released from those surveys.
The 2005-06 SIH repeated the 2003-04 HES/SIH practice of asking both the long standing income questions and the follow-up questions about salary sacrificed amounts, including identifying whether or not those amounts were also included in responses to the long standing income questions.
Commencing with the publication of the 2005-06 SIH results, all amounts salary sacrificed have been included in wages and salaries estimates. This includes employer superannuation contributions made as part of a salary sacrifice arrangement (which accounted for over 40% of the total amount salary sacrificed), as well as any amounts salary sacrificed for fringe benefits and the associated Fringe Benefits Tax (FBT).
As amounts salary sacrificed are not PAYG taxable income, in deriving disposable income measures for 2005-06, the amounts that were salary sacrificed have been excluded in estimating income tax and the Medicare levy.
The 2003-04 summary results have been similarly recompiled and the revised results are included in the time series tables in the 2005-06 issue of Household Income and Income Distribution, Australia (cat. no. 6523.0).
IMPACT ON THE ESTIMATES
The changed treatment of salary sacrifice has not impacted significantly on the estimates of wages and salaries and total household income, since most of the value salary sacrificed was already in wages and salaries estimates in the 2003-04 SIH. Table A3 compares estimates for 2003-04 and 2005-06 compiled using the new and former methods.
TABLE A3 WEEKLY INCOME AND SALARY SACRIFICE, New and former methods(a)
NEW METHOD (INCLUDES ALL SACRIFICED SALARY)
Difference in % change
|Mean income per week |
|Gross household income ||$ |
|Equivalised disposable household income ||$ |
|Mean salary sacrifice per week included in gross income ||$ |
|Gini coefficient ||ratio |
|Number of households using salary sacrifice arrangements ||'000 |
|Proportion of households using salary sacrifice arrangements ||% |
|. . not applicable |
|- nil or rounded to zero (including null cells) |
|(a) In 2005-06 dollars, adjusted using changes in the Consumer Price Index |
In 2005-06, the mean gross household income on the new method was $1,305 per week. Salary sacrifice accounted for 2.2% of mean income, with a mean salary sacrifice of $29 per week. More than one in ten households accessed salary sacrifice arrangements in 2005-06. From 2003-04 to 2005-06, the incidence of salary sacrifice by households and the mean amount salary sacrificed have increased.
In 2005-06, the Gini coefficient on the new method was 0.307, which is higher than when compiled on the former method (0.304). Including all salary sacrifice in the income estimates in 2005-06 has added 0.003 points to the 2005-06 Gini coefficient. It also added $5 (0.8%) to mean equivalised disposable household income.
For further information on ABS measures of employee remuneration and their impact on SIH, refer to Information paper: Changes to ABS Measures of Employee Remuneration (cat. no. 6313.0) or contact Jan Gatenby on (02) 6252 6174.