Calculating Employers Pension Contributions for Furlough Pay
Calculating Employers Pension Contributions for Furloughed Workers
Update 6.5.2020
Where an employee is in an auto-enrolment pension scheme there is a maximum amount that can be claimed for employers pension contributions, which is the contribution made or 3% of qualifying earnings, whichever is lower.
Where an employee is furloughed for the whole pay period the calculation is straightforward and as originally indicated:
3% of (Furlough pay – lower earnings limit) = the employer pension based on qualifying earnings
If you have a negative value it is converted to zero and nothing can be claimed.
The lower earnings limit for this tax year is £520 per month or £120 per week. Where there is only furlough pay for the whole pay period, there is no top up, and the pension scheme is already based upon qualifying earnings you can simply lift the values from our reports.
If the pension scheme is on a different basis, such as total earnings, or there is some top up pay, then the calculation needs to be used.
If the furlough pay is only for part of the period then the lower earnings limit needs to pro rated as previously discussed. See the Government CJRS website for further details:
Update 24.4.2020
There has been another change! The lower earnings limit can now be apportioned if the furlough pay is not for the full period. If it is furlough pay for the whole period then the calculation remains the same.
Update 20.4.2020
(Please read the latest guidance before making a claim, HMRC are using a pro-rata for the NI calculation rather than their original guidance, but have used the below for the pension)
If your pension scheme already uses qualifying earnings, and your employees are only receiving furlough wages then the pension contributions will be simple to lift from the payroll reports. Where things get more complex are when workers have a combination of furlough and non-furlough pay, or your pension is calculated on an alternative basis.
“Employer pension contributions that are paid on the subsidised furlough pay, up to the level of the minimum automatic enrolment employer contribution. The maximum level of grant for employer pension contributions on subsidised furlough pay is set in line with the minimum automatic enrolment employer contribution of 3% on qualifying earnings. Grants for pension contributions can be claimed up to this cap provided the employer will pay the whole amount claimed to a pension scheme for the employee as an employer contribution.”
https://www.gov.uk/guidance/claim-for-wage-costs-through-the-coronavirus-job-retention-scheme
Update 17.4.2020
Although salary sacrifice pension schemes will again need to be dealt with separately, it would seem likely that a proportion of the pension contribution can be claimed against. CJRS also states it is for auto-enrolment schemes, so where an employer pays into a private pension that may well not be covered.
Because there is an upper limit to the amount of furlough pay only the lower band needs to be considered, and because it is only the employers contribution we do not need to take into account the tax treatment of the scheme. If you want to know more about qualifying earnings used in auto-enrolment pension contributions see here
The lower level is £520 per month, or £120 per week, for this tax year and was £512 per month, or £118 per week for the 19/20 tax year. The pension is calculated on the portion above this lower level.
For example:
Month 1 payroll (April), monthly pay frequency:
Furlough pay = £2500
2500 – 520 = 1980
1980 x 0.03 = £59.40
This would be the maximum that could be claimed for that employee according to the current guidance. It should be noted that the amount claimed cannot exceed the amount contributed by the employer.
If an employee has furlough pay below the lower limit then no contributions could be claimed for, and negative values would be zero.
For example:
Month 12 (March), 2-weekly payroll
Furlough pay = £200
200 – 236 = 0
236 is used as this is twice the weekly lower level for the 19/20 tax year. There is no employers pension contribution that can be claimed.
Care should be taking when looking at you pension contributions as some pension companies use very misleading terminology. Beware banded and un-banded descriptions and if there is any doubt contact your pension company. The government will be using the definitions used by The Pensions Regulator.
We will be working on a report with a calculation for employers National Insurance and a pension value for qualifying earnings for a pay component with Furlough in the description, this may well not be available by Monday and will probably only function in the current pay period. Where employers have chosen more complex pay arrangements for their employees we are anticipating providing the raw data for them to feed into the spreadsheet or whatever was designed. The payroll .csv should already work for this perfectly well.
Useful links:
https://www.thepensionsregulator.gov.uk/en/employers/new-employers/im-an-employer-who-has-to-provide-a-pension/declare-your-compliance/ongoing-duties-for-employers-/earnings-thresholds
https://www.gov.uk/guidance/claim-for-wage-costs-through-the-coronavirus-job-retention-scheme