How to calculate employees’ pensionable earnings | Moorepay
April 26, 2024

How to calculate employees’ pensionable earnings

how to calculate pensionable earnings

We know that, as an employer, by law we must contribute to our employees’ pension. But what are pensionable earnings? And how do we calculate them?

As an employer, you must now legally auto enrol your employees into your workplace pension scheme. Contributions must hit minimum contributions to be legally compliant and will reflect figures known as ‘pensionable earnings’ or ‘pensionable pay’.

How do I calculate pensionable pay?

Like with many things, there is more than one way to skin a cat. Pensionable pay can be calculated through the following:

  • Basic pay
  • Qualifying earnings
  • And total earnings.

Both employer and employee contribution will be based on one of these figures, depending on which method you use.

Basic pay

In this calculation pensionable earnings = the employees’ basic salary before bonuses, commission and overtime.

Qualifying earnings

Qualifying earnings is the most popular method used by employers, particularly common for defined benefit pension schemes, and is a band of earnings you can use to calculate contributions. Every year, the figures are reviewed.

In tax year 2024/25, qualifying earnings are currently set at the band from £6,240 to £50,270 and include all forms of payment including bonuses etc. Which means as an employer, you’ll contribute a percentage of your worker’s gross annual earnings that fall between these figures.

For more information, NEST has a good article on this.

Total earnings

Total earnings is the whole kit and kaboodle. That means salary, bonus and commission. The only thing that does not contribute to this is any income from dividends.

Examples of pensionable pay calculations

The below examples work on the basis that minimum contributions of 8% are applied (3% for the employer, 5% for the employee). In the examples below, the employee earns £35,000 per year through their salary and £10,000 in commission.

Basic pay

Basic pay is £35,000. Therefore, the employer would contribute £1,050 and the employee would contribute £1,750.

Qualifying earnings

Qualifying earnings are salary + commission (£45,000) minus £6,240, which makes £38,760. So the employer contributes £1,162.80 and the employee contributes £1,938.

Total earnings

Total earnings are £45,000. Contributions are 3% for the employer (£1,350) and 5% for the employee (£2,250).

Struggling with auto enrolment and not sure if you’re legally compliant? Book a consultation.

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About the author

HR Consultancy Team Moorepay