When you set up a workplace pension you’ll need to consider the costs and decide how to calculate pension contributions
There are three ways to calculate pension contributions. Which way you choose will depend on whether your staff get regular bonuses or do overtime, or whether you’re trying to keep costs down.
The three options are:
- Basic Pay bases contributions on pay before any additions such as bonuses or overtime.
- Total earnings contributions are worked out on full earnings before tax.
- Qualifying earnings or banded earnings includes salary as well as things that tend to vary each much such as commission, bonuses, sick or maternity pay.
If you choose qualifying or banded earnings contributions will be calculated on salary that falls between £5,824 and £43,000 a year. The Pensions Regulator automatic enrolment earnings threshold table shows the threshold for different pay frequencies.
Contributions are a percentage of qualifying earnings before tax and National Insurance are deducted. To work out contributions you’ll need to use Automatic enrolment earnings threshold. So for a worker who earns £1,000 monthly you’ll need to deduct the monthly threshold of £486. This will give you pensionable pay of £514.
See The Pensions Regulator Detailed guidance for employers Assessing the workforce, p 33 for more examples of how this works.
Pensionable earnings (or pensionable pay)
If you already provide a pension scheme that qualifies for auto enrolment then you may choose to base contributions on pensionable pay. Pensionable pay will be defined by the rules of the pension scheme and typically doesn’t include commission, bonuses and overtime. If you decide to do this your scheme will need to satisfy other requirements.
If you plan to use an existing scheme you would need to use certification to confirm that you are meeting the minimum contribution requirements set down my law.
See the Pensions Regulator Detailed guidance for employers Pension schemes, P22 for more on pensionable pay.
If you’re using payroll software or a payroll bureau qualifying earnings will be worked out for you.
Want some help with your payroll and workplace pension? Contact Us E: hayley@biznuspayroll.co.uk T: 01373 228300 |