The amount you must contribute to a pension scheme is determined by the scheme’s rules. However, if you are using the scheme for automatic enrolment, there are minimum contribution requirements that must be met. Currently, the total minimum contribution is 8% of an employee’s qualifying earnings, with at least 3% paid by the employer.

Calculation of Contributions

Pension contributions are usually calculated as either a fixed amount or a percentage of earnings. If contributions are based on a percentage, you must regularly confirm employee salaries with your pension provider or trustees.

You also need to decide which elements of staff pay will be used to calculate pension contributions, such as whether to include only basic pay or also bonuses and overtime. Any decisions must comply with legal requirements, and you must inform your pension scheme provider accordingly.

Payroll System and Automation

If you use an automated payroll system, it must be able to calculate contributions accurately and deduct the correct amounts from employees’ pay. You should ensure that your payroll system is compatible with your chosen pension scheme.

If you are unsure, check your payroll software or contact your payroll provider. You must also provide payroll with the correct contribution rate and details of which earnings should be used for calculations.

Payment Deadlines and Compliance
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Contributions must be paid to your staff pension scheme on time. This includes calculating and deducting employee contributions and ensuring payments are made by the agreed due date. By law, any contributions deducted from employees’ salaries must be paid into the pension scheme no later than the 22nd of the following month (or the 19th if paying by cheque). There are special rules for the first deduction of contributions under automatic enrolment as set out in the Pensions Act 2008.

Consequences of Late Payments

Failure to pay contributions on time may result in financial penalties. While you may agree on an earlier payment date with your pension trustees or administrators, it is often simpler to pay employer contributions on the same day as employee contributions.