If you are an employer with a Workplace Pension Scheme in place you may be wondering what are Qualified Earnings for pension purposes.

Qualified Earnings band £5,876 and £45,000 a year

As an employer you are required to make a pension contribution into your employees retirement pot, currently 1% of qualified earnings, as well as deduct an amount from your employees salary, also 1% of qualified at the moment.**

The employers and employees 1% pension contributions are only made when an employee earns between £5,876 and £45,000.  So if you have a member of staff earning £20,000, then qualified earnings for pension contribution purposes will be based on £14,124 for the employer and employee (£20,000-£5,876).

It is common for employees to be earning commissions, bonus’ or benefits so the following items should be included when calculating qualified earnings:

  • their salary or wages;
  • overtime;
  • bonuses;
  • benefits such as car payments;
  • commission;
  • statutory sick pay;
  • statutory pay someone receives during paternity, maternity or any other kind of family leave;
  • adoption pay;
  • holiday pay.

**Contribution rates in place until 6 April 2018.  Subsequent rates are currently planned to increase as follows:

Contribution rates Employer Contribution Worker’s Contribution
Before 06 Apr 2018 1.0 % 1.0 %
From 06 Apr 2018 2.0 % 3.0 %
From 06 Apr 2019 3.0 % 5.0 %

 

Anita is a Chartered Accountant, turned blogger and creator of the ever popular free Go Self Employed Email Mini Course, which has been completed by hundreds of attendees all over the UK. Using her 10 years experience in accounting, tax and operations for Small Businesses, Anita is on a mission to make finance simple for the self employed, so they can stop stressing about tax & finances and focus on building profitable businesses which will give them the lifestyle they dream of.