Employers pay into your pension the set minimum contributions required by law, or more if they wish so. This requirement is set by the Government for any workplace pension.
Your pension contributions depend on your pension plan’s earnings basis, and are based on:
- your qualifying earnings.
- Or your pensionable earnings.
If employers don’t calculate contributions based on your earnings, then:
- they can match their pension contributions to your rate.
- They can increase their contribution rate compared to yours, and generally pay as much as they’d wish to.
For example, if your employer has agreed to match your payments to your pension, you’ll save 10% of your monthly salary and your employer will add an additional 10% to your pension.
Workplace pensions may seem daunting but Husky is here for you, every step of the way. We’re experts in simplifying pensions and helping you and your employer understand how pensions work in the workplace.
Let’s see how your employer makes payments to your pension.
Employer contributions based on qualifying earnings
Before we begin, it is important to define what ‘qualifying earnings’ means.
Qualifying earnings are:
- salary and wages
- bonus
- commission
- overtime
- statutory sick pay
- statutory maternity and paternity leave or adoption pay.
In other words, your and your employer’s payments to your pension are calculated based on the above.
Speak to us and find out about your employer’s pension contributions. We take care of workplace pensions, from start to finish – we know how to help you.
Qualifying earnings threshold for 2022/23
It is good to know that if your employer contributes to your pension based on qualifying earnings, they pay based on a small part of your earnings.
In the tax year 2022/23, the lower earnings threshold is £6,240 and the upper threshold is £50,270.
| Annually | 1 week | 4 weeks | |
| Lower earnings limit | £6,240 | £120 | £480 |
| Upper earnings limit | £50,270 | £967 | £3,867 |
Under qualifying earnings rules, your employer adds a minimum 3% payment to your pension based on your income between £6,240 and £50,270. Any earnings outside these thresholds are not included in the pension calculations.
For example, Tom earns £40,000 per year.
- His qualifying earnings are £33,760 (£40,000 – £6,240).
- His employer contributes the minimum 3% of Tom’s qualifying earnings. An extra £1,012 is added annually to Tom’s pension from the company.
- Tom contributes a minimum of 5% of his qualifying earnings.
It is important to know how pension contributions work on qualifying earnings. As an employee, you are aware of the pension you’re entitled to. As an employer, you are compliant and fair towards your employees, and this information helps you be that.
Employer contributions based on pensionable earnings
If your employer contributes to your pension based on pensionable earnings, they calculate payments based on a percentage of your pensionable earnings.
There are three options on how to save for your pension based on pensionable earnings.
- Pensionable Pay set 1.
- Pensionable Pay set 2.
- Pensionable Pay set 3.
Pensionable Pay set 1
Contributions are calculated based on your basic pay excluding bonuses, commission and overtime. Minimum total contributions in this scheme are 9%, where your employer contributes a minimum of 4% of your basic pay.
| Employee Contribution | Employer Contribution | Total Contribution |
| 5% | 4% | 9% |
For example, if Lucy earns £20,000 per year and gets a £2,000 bonus annually, her employer calculates company contributions to her pension based on her basic salary only. Therefore, her employer will pay a minimum of £800 every year to her pension, based on her £20,000 salary only.
Pensionable Pay set 2
Contributions are calculated based on basic pay and at least 85% of total earnings, including bonuses, commission etc. If your salary changes frequently, your employer should make sure they are compliant and that you meet the requirements.
Minimum total contributions in this scheme are 8%, where your employer contributes the minimum 3% of your pensionable earnings.
| Employee Contribution | Employer Contribution | Total Contribution |
| 5% | 3% | 8% |
Pensionable Pay set 3
Pension contributions are calculated based on your total earnings, including basic salary, bonuses, overtime etc. Minimum total contributions in this scheme should be 7%, where your employer contributes 3% of all your earnings.
| Employee Contribution | Employer Contribution | Total Contribution |
| 4% | 3% | 7% |
For example, Lucy earns £20,000 and a bonus of £2,000 every year. Her employer must calculate their contributions to her pension based on all of Lucy’s earnings. Therefore, her employer will add a minimum of £660 every year to her pension based on her earnings of £22,000.
As an employee, it is important that you are aware of how your employer calculates and pays into your pension. Take control of your retirement savings today. And as an employer, it matters that you know what to offer your employees for their future.
Husky can help you do that. Our sophisticated software helps us manage every aspect of an employer’s workplace pension scheme, ensuring they’re fully compliant with regulations as well.
Take a look for yourself.
Husky is here for you
We help employers and employees understand workplace pensions better. We strive to simplify pensions not only through our award-winning pension solution but also by sharing our expertise and knowledge on pensions for employers and employees.
We want to make workplace pensions work better for you. Find out how we can help you here.
Get more now. Have more later.
We setup and manage your pensions, payroll, and salary exchange—all in one place, ensuring compliance every step of the way.
