When you set up workplace pensions you’ll need to decide how to calculate pension contributions
There are three ways to calculate 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.
Enrolling Employees onto a Workplace Pension Scheme
Only eligible employees have to be enrolled. But as part of your duties you’ll have to write to the staff who aren’t eligible for automatic enrolment and tell them about their right to opt in, or join, your pension scheme.
Workplace Pensions – Opting in by a non-eligible job holder
Non-eligible jobholders (anyone earning over £5,824 and up to £10,000) can ask to opt in to your scheme and if they do, you’ll need to make contributions.
Workplace Pensions – Opting in (joining) by an entitled worker
You don’t need to enrol an entitled worker (earning less than £5,824) but these employees can ask to join the scheme.
You won’t have to make any contributions to the scheme.
Workplace Pensions – How employees opt in
The process of opting in will vary depending on which pension provider you’re using. The communication you send out to your employees will outline the opt-in process. Sometimes an employee will have to ask the pension provider for a form. But in many cases a signed letter sent by your employee to you will be enough.
Employees can also request to join via email but this email must include a statement confirming that the employee has personally submitted the notice.
What to do if you receive an opt-in notice
You’ll need to assess the employee to decide whether they qualify as a non-eligible jobholder or an entitled worker. Carry out the assessment on the first day of the next pay reference period, after you receive the opt-in notice. This will be your enrolment date.
If you receive an opt-in notice part way through the pay reference period you’ll need to assess the worker on the first day of the next pay reference period.
The pay reference period is the frequency with which you pay your employees – weekly, monthly or every four weeks
a) Non-eligible jobholder
If you’ve assessed an employee as being a non-eligible jobholder then you’ll need to either:
- Enrol the jobholder within six weeks of the enrolment date by following the automatic enrolment process
- If you don’t have a scheme in place you’ll need to set one up within six weeks of the enrolment date and enrol your employee.
b) Entitled worker
You have six weeks from the enrolment date to set up a scheme but it doesn’t have to be an auto enrolment qualifying scheme as long as it’s a tax-registered scheme.
You’ll need to keep records relating to the scheme and your employees who are members of this scheme, such as opt-in notice.
Detailed guidance from TPR Opting in, joining and contractual enrolment
If you’d like to know more about our Workplace Pension Services, please get in touch.
Email: info@biznuspayroll.co.uk
Main Office
2nd Floor Office Suite
The Welsh Mill, Park Hill Drive
Frome, Somerset
BA11 2LE
Tel: 01373 228300
