We often hear about the lucrative tax-free reserve day. Yet, if it is so compelling, why does Defence struggle to fill the organisation? In 2023–24, Defence was forecast to recruit 1,011 reservists against a target of 2,089[1]. In 2024–25, almost a third of the 33,000 reservists available to serve did no paid service at all[2].
One factor could be that, for the average person, a reserve day is not nearly as lucrative as we think. The shortfall grows for those willing to give more than a Tuesday night, those who could offer two or three days a week around study, caring or other work. Yet we continue pushing them towards SERCAT 5 (the active Reserve) rather than SERCAT 6 (part-time permanent service), which could offer a more compelling option.
Tax-free pay helps less than it seems
Take a sergeant on pay grade 4, increment 1. A permanent sergeant earns $111,041 a year, or $87,209 after tax[3][4], over about 227 working days once 25 days of recreation leave and nine weekday public holidays are removed. That is $489 per day worked before tax, or $384 after tax.
A reserve sergeant earns $304.22 per day, tax-free, and only for days actually served. The rate is the annual salary divided by 365, implying that reservists would have to work every day of the year, weekends and public holidays included, to make the same salary. After tax, the permanent sergeant still earns 26% more per day worked. Civilian employers do the opposite, paying casuals a loading of around 25% for the leave and public holidays they forgo[5].
The tax exemption only makes up the difference at a marginal tax rate of 37.8%, which means a civilian income above $135,000[6], about $27,000 more than average full-time earnings[7]. Below that, the same salary paid pro-rata and taxed normally is worth more.
Breakeven analysis on pro-rata (taxed) vs tax-free reserve pay
And the more someone serves, the less the exemption is worth to them. People offering several days a week usually have little other income, so they face low tax rates anyway.
Take a sergeant who left the permanent force to care for children or study full-time, Sergeant Barnes. They might prefer to keep serving, but the two-and-a-half reserve days a week they could do would earn them only $34,500 a year, with the tax exemption worth about $2,450 of that. Pro-rata pay for the same days would be worth $48,300 after tax, $13,800 more. Most in Sergeant Barnes’ position are choosing not to keep serving, and in a cost-of-living-challenged situation, $13,800 is highly significant.
The exemption is most valuable to high earners, yet they are the reservists for whom pay matters least. Their civilian salaries are already high, so they don’t need the same degree of support to serve. As a financial incentive, tax-free pay is weakest exactly where Defence needs it most[8].
Permanent service is worth even more than it looks
Salary is only part of permanent remuneration. Permanent members also receive employer superannuation of 16.4% ($15,479 a year after contributions tax)[9], free medical and dental care (worth about $2,124 a year more than reservists receive)[10] and, where eligible, rent allowance: $14,822 a year for a sergeant with family in Townsville, rising to $35,466 in Sydney[11].
Because these benefits are not taxed, they are worth more than the same amount of salary. Matching Townsville rent allowance with taxable pay would take a 19% pay rise; in Sydney, 48%.
Value per day worked, permanent and reserve sergeant[12]
Even without rent allowance, the permanent package is worth 52% more per day worked. For the many reservists who are former permanent members, the value Defence places on a day of their labour roughly halves the day they transfer.
What this means for Defence
Defence does not have a meaningful part-time offer in use. It has a full-time offer and a reserve offer, and the reserve offer is less attractive than it looks.
Some premium for full-time service is justified. Full-time members accept obligations that civilian employment does not impose: liability to deploy, to be posted anywhere and to be available at any hour. Defence needs those obligations and should pay for them. The question is how large that premium should be and whether the resulting offer is sufficient to attract the personnel that Defence wants.
At present, it doesn’t. Tax-free pay rewards high earners most, while SERCAT 5 does not pay enough to sustain the people who could give Defence meaningful part-time service: carers, students and those working reduced hours. It is little surprise that the Reserve misses its recruiting targets, or that a third of available reservists do no paid service.
SERCAT 6 was designed for exactly this. Members serve part-time, remain liable for permanent service, and keep their salary and benefits pro-rata[13]. Yet in 2024–25, only 140 members were in SERCAT 6[14], down from 361 in 2021[15], against roughly 18,400 in SERCAT 5[16], about one for every 130. The full analysis of SERCAT 6 underutilisation is beyond the scope of this article, but the difficulty of splitting full-time positions between SERCAT 6 staff and the lack of fungibility for Army Reserve Training Day funding are both likely significant frictions.
These frictions persist partly because of the myth. If a reserve day is lucrative, members who want to work less can simply transfer to the Reserve, and nobody needs to fix SERCAT 6.
If Defence is serious about its recruiting targets, it has two options. It could offer reservists a choice between the tax-free daily rate and a taxable pro-rata rate, keeping the exemption for the high earners who value it. This would cost Defence more per day, although much of the difference would return to the Commonwealth as income tax[17]. Or it could broaden the use of SERCAT 6, letting reserve funding support SERCAT 6 positions and making it easier to split full-time effort between different service types.
With pro-rata pay, Sergeant Barnes might have kept serving. There are thousands like them. If Defence wants the part-time workforce it says it is pivoting towards, it must stop relying on the myth of the lucrative reserve day.
Footnotes
[1] Department of Defence, Strategic Review of the ADF Reserves, December 2024, Table 3
[2] Department of Defence, Annual Report 2024–25, ADF Reserves, Table 5.13
[3] Defence, PACMAN Schedule B.12: Other rank salary rates, rates from 6 November 2025 (Sergeant, pay grade 4, increment 1: $111,041 a year; Reserve daily rate $304.22)
[4] ATO, Tax rates: Australian residents 2026–27. Tax on $111,041 is $23,832.30 ($4,020 at 15% plus $19,812.30 at 30%). Permanent ADF members are exempt from the 2% Medicare levy which is worth $2,220.82 a year to this sergeant and is included in the after-tax figure
[5] Fair Work Ombudsman, Casual employees: most modern awards provide a casual loading of 25%
[6] A tax-free $304.22 equals a taxable $489.17 at a marginal rate of 37.8%. The 37% bracket starts at $135,001. This assumes the 2% Medicare levy applies to the reservist's civilian income, giving effective marginal rates of 32% below $135,000 and 39% above it
[7] ABS, Average Weekly Earnings, Australia, May 2026: full-time adult ordinary time earnings of $2,083.70 a week, or $108,352 a year
[8] Reserve: 113.5 days (half of 227) × $304.22 = $34,528.97. If this were taxable, income tax would be ($34,528.97 − $18,200) × 15% = $2,449.35, excluding the Medicare levy. SERCAT 6 at 50%: $55,520.50 before tax, $7,176.15 tax, $48,344.35 after tax (Medicare levy exempt), a difference of $13,815.38. Excludes the $600 health support allowance and $9,105 a year of pro-rata employer superannuation
[9] Defence Act 1903 s 52A; Commonwealth Superannuation Corporation, ADF Super. 16.4% × $111,041 = $18,210.72, less 15% contributions tax = $15,479.12
[10] Money.com.au, How much does private health insurance cost in 2026?, 13 October 2026 (average single hospital and extras policy, $2,724 a year), less the $600 health support allowance for reservists serving 20 or more days a year (Defence, Pay and financial benefits in the Reserves). This is a proxy and likely understates the benefit, as ADF care has no gap fees and includes dental
[11] Townsville: $14,821.82 ÷ 0.70 = $21,174 of extra salary (19%). Sydney: the first $23,959 of extra salary (to $135,000) yields $16,771 after tax at 30%; the remaining $18,695 requires $29,674 at 37%, a total of $53,633 (48%)
[12] Per day worked = (after-tax salary + superannuation after contributions tax + net healthcare + rent allowance) ÷ 227 days. Without rent allowance the total is $462 per day, 52% more than a reserve day
[13] Defence, ADF Total Workforce System; Defence, Salary (SERCAT 6 salary reduced pro-rata for agreed non-working days)
[14] Department of Defence, Women in the ADF Report 2024–25, Table 24 (113 women and 27 men using SERCAT 6)
[15] Department of Defence, Introductory briefing to the Royal Commission into Defence and Veteran Suicide, August 2021, p. 10 (as at 1 July 2021)
[16] Department of Defence, Strategic Review of the ADF Reserves, December 2024, Table 1 (18,440 SERCAT 5 members as at 1 March 2024)
[17] A pro-rata day costs Defence $489.17, compared with $304.22 for a reserve day. At average earnings, $156.53 of the pro-rata day returns as income tax and the Medicare levy, so the net cost to the Commonwealth is about $29 a day
Updated November 2026
Thank you for the great work in examining this issue and providing an informative and succinct analysis. which clearly demonstrates the significant pay differential. This is one reason why so few SERCAT 7 members transfer to Reserve service which underpins the failure of the much hyped Total Work Force System.
There is also an arguments made that speaks to the opinion of Defence financially supporting people who are no longer soldiers, regarding a former full time soldier studying at university and relying on ARES work to feed their families. In any other profession it would be unreasonable to assume that 2.5 days of work could adequately finance a family's cost of living, and therefore reserve work should be no different. Once again, that person, whilst likely committed to defence service, cannot realistically and in alignment with policy be relied upon to provide service in any consistent manner, and contribute to actual operational effects due to their discretionary employment.
A realistic perspective must also be taken as to the utility that a reservist is provided as opposed to a full time soldier or officer. For such changes to pay to be included into the defence budget would need to be justified as to their utility in supporting national security. This is opposed to the supporting, training or staffing functions that exists within 2 Division units, which may be vacant, but from a national strategic perspective provide not as much significance compared to other parts of the full time workforce.
Finally, it is an oversimplified calculation to use the 48 weeks per year, 5 days per week equation to come up with a daily pay rate for a full time soldier or officer. Full time personnel inherently work weekends, holidays and overtime at the same base salary because that is the nature of their service. As such, the calculation of the daily pay rate to make comparisons to the reserve pay rate is misleading and not at all aligned with the conditions of service between the different service categories.
An incentive is needed for ex ARA to transfer to SERCAT 5. It is travesty that so few ARA move to SERCAT 5; reserve units would benefit from these experienced pers.
It would be helpful if SERCAT 5s were involved in policy development. Pay should recognise SERCAT 5s with readiness requirements, noting higher domestic ops roles. For most trades, you need to be doing 70+ days to provide a useful level of capability. It is hard for lower ranks, with a civilian job or studying, to afford to undertake SERCAT 5 work.
There must be an incentive to stay SERCAT 5 and serve more days. Perhaps a tiering system were pay increases the more days served. This may encourage pers to see Army as a viable part-time career rather than a hobby.
Expectation of the reserve force may be unrealistic. Many SERCAT 5s with in demand skills are already working 220 days + in a civilian job. Adding 100 days a year part-time service means they are working almost seven days/week with no respite. While government agencies may provide generous leave, others in civilian roles or self-employed often undertake leave without pay to do reserve service. For many on lower Army rates, they may not be able to afford to serve, especially when their Army pay is far below their civilian pay.
Pay is not the only issue. Provided interesting work, educating FE on how to integrate full/part-time elements, providing deployment ops and reducing laborious practices will help. Then there is the Army value of respect - why put a civilian career at risk and comprise time with family for an employer that underpays you, pays no super, is not inclusive, disparages reservists or provides mind numbing work? The SERCAT 5 that feels disrespected simply stops parading.
Is this still the situation? Make working at Macca's suddenly more attractive.
James Price's article highlights a critical issue in the pay disparity between permanent force members and reservists. The numerical comparison starkly shows that reservists, despite being highly trained and often ex-permanent members, earn significantly less on a daily basis compared to their full-time counterparts. This discrepancy is particularly evident when considering benefits like superannuation, healthcare, and rent allowances that permanent members receive but reservists do not.
The analysis suggests that the current reserve pay structure does not adequately reflect the value of the reservists' contributions, leading to lower attraction and retention rates. For many reservists, especially those with average incomes or higher, the financial incentive to remain in or join the reserves is weak. The case of Sergeant Barnes, who finds part-time reserve work financially unsustainable, underscores this problem.
To address these issues, the article advocates for a shift to pro-rata pay for reservists, aligning their compensation more closely with that of permanent members on an hourly or weekly basis. This change could enhance recruitment and retention, ensuring that the reserve force remains a viable and attractive option for potential candidates. Given the reported surplus in reserve funding and recent government promises for new positions, implementing a fairer pay structure seems both feasible and necessary.
As people get pay rises in their civilian and reservist roles, they constantly have to weigh up which is going to pay their bills better. There often comes a point where it is simply not worth continuing with reserve service as their time is more valuable than the remuneration received. This is a wicked problem as we can't start paying reservists more, or else we risk encouraging SERCAT transfers.