For discrepancies in an employee's pension contributions, especially when switching payroll software providers, verify that your software settings align with those expected by your pension provider.
In the Pension section of BrightPay, click to view your pension group settings. Take note of the earnings basis that was selected.
Check the tax relief method that has been applied for the employee. To do this, go to the payroll screen, click into the employee's open payslip and click the tool icon beside the pension element.
A menu will appear in which you can view the earnings limits and the tax relief method applied to this pension deduction.
Calculating the employee and employer Pension Contributions
1. Calculate the qualifying earnings
If the employee has standard monthly earnings bands of 520 and 4189 (or 120 - 967 for weekly), then please ensure to calculate the qualifying earnings taking the bands into account. The pension contributions are then calculated based on the qualifying earnings. The table below shows two examples of working out the qualifying earnings for a monthly paid employee.
| Pensionable Pay | £1,000 (below the upper limit) | £5,000 (above the upper limit) |
| Lower Limit | £520 | £520 |
| Upper Limit | £4,189 | £4,189 |
| Qualifying Earnings | £480 | £3,669 |
| *£1,000 - £520 | £4,189 - £520 |
2. Calculate the employee contribution
If the pension scheme is using the tax relief at source method, then the employee contribution is reduced by 20%. The 20% is recovered by the pension provider from HMRC and added back to the employee's pension pot.
With net pay arrangement pension deductions, the pension is deducted before the employee's tax and no further reduction of the employee contribution is applied. The table below shows how the employee's contribution is calculated with both tax relief at source and net pay arrangement.
| Qualifying Earnings | £1,000 | £1,000 |
| Employee % | 5% | 5% |
| Tax relief method | Relief at source | Net pay arrangement |
| Employee contribution | £40 | £50 |
| (£1,000 * 5%) - 20% | £1,000 * 5% |
3. Calculate the employer contribution
To calculate the employer contribution, multiply the qualifying earnings by the employer contribution percentage, eg £1,000 * 3% = £30
Note: If Net pay arrangement is required, you can change this on the employee's payslip. The pension during enrolling the employee may only have 2 options; Tax relief at source or No tax relief. If you require net pay arrangement, choose tax relief at source and then go to the employee's payslip. Hold down the Shift key on your keyboard and click on the spanner icon on the pension line - you will then see the option for Net pay arrangement.
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