Introduction
This guide will give you an overview of how to configure your Friends Life pension deductions depending in the payroll. Creating the output file is covered in a separate guide, see the Pension Guide for more information.
The guide covers:
Creating an employee pension deduction
Creating an employer pension deduction
Friends Life permit employers to calculate the pension deduction based on a percentage of Qualifying Earnings or Certified Earnings; for more information contact Friends Life.
The tax basis of the pension deduction can be via Salary Exchange (also known as Salary Sacrifice) or Employee Net Contributions; for more information contact Friends Life.
For instructions on how to setup the employee and employer pension deduction, select your pension scheme option from the list:
Salary Exchange (Salary Sacrifice) pension - based on Qualifying Earnings
Employee net contribution - based on Qualifying Earnings
Salary Exchange (Salary Sacrifice) pension - based on Certified Earnings
Employee net contribution - based on Certified Earnings
Salary Exchange (Salary Sacrifice) pension - based on Qualifying Earnings
A Salary Exchange pension deduction is deducted from the employee’s pay before Tax and NI is calculated, which means the employee is due to pay less Tax and NI.
A Qualifying Earnings pension deduction is calculated as a percentage of the employee’s Qualifying Earnings between the lower limit and upper limit. For tax year 2015/16, the lower limit is £5,824 and the upper limit is £42,385.
Add employee pension deduction:
1. Go to the Company menu and select ‘Alter Payments / Deductions’
2. Click on ‘Add New’
3. On the message asking if you want to use the wizard, click ‘No’
4. Enter a Name for the pension deduction
5. In the Category field, select ‘Apply Before Tax & NI Calculation’
6. In the + or - field, select ‘Deduction’
7. In the Type field, select ‘Percentage Auto Enrolment’
8. Range check should be the default of ‘None’
9. Report Group should be the default of ‘<None>’
10. When Clear Totals field is set to ‘Annually’, during Year end Restart the year to-date total for this pension deduction will be clear along with other year to-date totals
11. Click ‘OK’
Add employer pension deduction:
1. Go to the Company menu and select ‘Alter Payments / Deductions’
2. Click on ‘Add New’
3. Click ‘No’ to the message asking if you want to use the wizard
4. Enter a Name for the pension deduction
5. In the Category field select ‘Display Item Only’
This option is chosen so the employee’s pay isn’t affected. If you don’t want to show the employer’s deduction on the employee’s payslip, select ‘Display Item Only – Hidden from Payslip’
6. In the + or - field, select ‘Deduction’
7. In the Type field, select ‘Percentage Auto Enrolment’
8. Range check should be the default of ‘None’
9. Report Group should be the default of ‘<None>’
10. When Clear Totals field is set to ‘Annually’, during Year-end Restart the year to-date total for this pension deduction will be cleared along with other year to-date totals
11. Click ‘OK’
Enter default percentage for the employee and employer pension deduction:
1. Go to the Company menu and select ‘Alter Payments / Deductions’
2. Next to the employee pension deduction, click in the ‘Standard’ field and enter the default percentage
3. Next to the employer pension deduction, click in the ‘Standard’ field and enter the default percentage
Configure pension deduction pay elements:
1. Go to the Pension menu and select ‘Configure Earnings’
2. Tick ‘Qualifying Earnings’ box for all pay elements to include in employees’ total earnings when payroll assesses employees for automatic enrolment. The employees’ pension contribution will also be calculated on these pay elements
3. Click ‘OK’
Employee net contribution - based on Qualifying Earnings
An Employee net contribution pension Deduction is deducted from the employee’s pay after Tax and NI is calculated, then the employee receives basic rate tax relief on that pension deduction; for tax year 2014/15 the rate is 20%. Higher rate tax payers need to claim the remaining tax relief from HMRC. This method of deducting pension contributions HMRC call relief at source (RAS).
In payroll, if say the employee’s pension deduction is 1%, you would enter 1% in the employee’s pension contribution standard value but the actual deduction will be 0.8% from their pay.
A Qualifying Earnings pension deduction is calculated as a percentage of the employee’s Qualifying Earnings between the lower limit and upper limit. For tax year 2015/16, the lower limit is £5,824 and the upper limit is £42,385.
Add employee pension deduction:
1. Go to the Company menu and select ‘Alter Payments / Deductions’
2. Click on ‘Add New’
3. Click ‘No’ to the message asking if you want to use the wizard
4. Enter a Name for the pension deduction
5. In the Category field select ‘Apply After Tax & NI Calculation’
6. In the + or - field, select ‘Deduction’
7. In the Type field, select ‘Percentage Auto Enrolment’
8. Range check should be the default of ‘None’
9. Report Group should be the default of ‘<None>’
10. When Clear Totals field is set to ‘Annually’, during Year end Restart the year to-date total for this pension deduction will be cleared along with other year to-date totals
11. Tick ‘Subtract Basic Rate Tax’ box
12. Click ‘OK’
Add employer pension deduction:
1. Go to the Company menu and select ‘Alter Payments / Deductions’
2. Click on ‘Add New’
3. Click ‘No’ to the message asking if you want to use the wizard
4. Enter a Name for the pension deduction
5. In the Category field select ‘Display Item Only’ This option is chosen so the employee’s pay isn’t affected. If you don’t want to show the employer’s deduction on the employee’s payslip, select ‘Display Item Only – Hidden from Payslip’
6. In the + or - field, select ‘Deduction’
7. In the Type field, select ‘Percentage Auto Enrolment’
8. Range check should be the default of ‘None’
9. Report Group should be the default of ‘<None>’
10. When Clear Totals field is set to ‘Annually’, during Year
end Restart the year to-date total for this pension deduction will be cleared along with other year to-date totals
11. Click ‘OK’
Enter percentage for the employee and employer pension deduction:
1. Go to the Company menu and select ‘Alter Payments / Deductions’
2. Next to the employee pension deduction, click in the ‘Standard’ field and enter the default percentage
3. Next to the employer pension deduction,
click in the ‘Standard’ field and enter the
default percentage
Configure pension deduction pay elements:
1. Go to the Pension menu and select ‘Configure Earnings’
2. Tick ‘Qualifying Earnings’ box for all pay elements to include in employees’ total earnings when payroll assesses employees for automatic enrolment. The employees’ pension contribution will also be calculated on these pay elements
3. Click ‘OK’
Salary Exchange (Salary Sacrifice) pension - based on Certified Earnings
A Salary Exchange pension deduction is deducted from the employee’s pay before Tax and NI is calculated, which means the employee is due to pay less Tax and NI.
Certified Earnings is calculated as a percentage of the tiered earnings you specified when setting up the Friends Life scheme by choosing one of the following options:
Tier 1 (set 1) – must be at least equal to the employee’s basic pay, for example the employee’s salary. This doesn’t take into account any additional pay elements, such as overtime, bonuses, commission or shift premium pay.
Tier 2 (set 2) – must be at least 85% of the employee’s Total Earnings. This includes any additional pay elements, such as overtime or bonuses.
Tier 3 (set 3) – all of the employee’s earnings are pensionable. This includes any additional pay elements, such as overtime or bonuses
Add employee pension deduction:
1. Go to the Company menu and select ‘Alter Payments / Deductions’
2. Click on ‘Add New’
3. Click ‘No’ to the message asking if you want to use the wizard
4. Enter the Name of the pension deduction
5. In the Category field select ‘Apply Before Tax & NI Calculation’
6. In the + or - field, select ‘Deduction’
7. In the Type field, select ‘Percentage’
8. In the Range check field, leave the default as ‘None’
9. In the Report Group field, leave the default as ‘<None>’
10. When Clear Totals field is set to ‘Annually’, during Year-end Restart the year to-date total for this pension deduction will be cleared along with other year to-date totals
11. Tick the ‘Pension’ box
12. Click the ‘% Settings’ and then tick all the pay elements you want the pension deduction to be calculated on
13. Click ‘OK’ on the Percentage calculation screen
14. Click ‘OK’ on the Settings for New Payment/Deduction screen to save the new employee pension deduction
Add employer pension deduction:
1. Go to the Company menu and select ‘Alter Payments / Deductions’
2. Click on ‘Add New’
3. Click ‘No’ to the message asking if you want to use the wizard
4. Enter the Name of the pension deduction
5. In the Category field select ‘Display Item Only’ This option is chosen so the employee’s pay isn’t affected. If you don’t want to show the employer’s deduction on the employee’s payslip, select ‘Display Item Only – Hidden from Payslip’
6. In the + or - field, select ‘Deduction’
7. In the Type field, select ‘Percentage’
8. In the Range check field, leave the default as ‘None’
9. In the Report Group field, leave the default as ‘<None>’
10. When Clear Totals field is set to ‘Annually’, during Year-end Restart the year to-date total for this pension deduction will be cleared along with other year to-date totals
11. Tick the ‘Pension’ box
12. Click the ‘% Settings’ and then tick all the pay elements you want the pension deduction to be calculated on
13. Click ‘OK’ on the Percentage calculation screen
14. Click ‘OK’ on the Settings for New Payment/Deduction screen to save the new employer pension deduction
Enter default percentage for the employee and employer pension deduction:
1. Go to the Company menu and select ‘Alter Payments / Deductions’
2. Next to the employee pension deduction, click in the ‘Standard’ field and enter the
default percentage
3. Next to the employer pension deduction, click in the ‘Standard’ field and enter the
default percentage
Configure Qualifying Earnings:
1. Go to the Pension menu and select ‘Configure Earnings’
2. Tick ‘Qualifying Earnings’ box for all pay elements to include in employees’ total earnings when payroll assesses employees for automatic enrolment
3. Click ‘OK’
Employee net contribution - based on Certified Earnings
An Employee net contribution is deducted from the employee’s pay after Tax and NI is calculated, then the employee receives basic rate tax relief on that pension deduction; for tax year 2014/15 the rate is 20%. Higher rate tax payers need to claim the remaining tax relief from HMRC. This method of deducting pension contributions HMRC call relief at source (RAS).
In payroll, if say the employee’s pension deduction is 1%, you would enter 1% in the employee’s pension contribution value but the actual deduction will be 0.8% from their pay.
Certified Earnings is calculated as a percentage of the tiered earnings you specified when setting up the Friends Life scheme by choosing one of the following options:
Tier 1 – must be at least equal to the employee’s basic pay, for example the employee’s salary. This doesn’t take into account any additional pay elements, such as overtime, bonuses, commission or shift premium pay.
Tier 2 – must be at least 85% of the employee’s Total Earnings. This includes any additional pay elements, such as overtime or bonuses.
Tier 3 – all of the employee’s earnings are pensionable. This includes any additional pay elements, such as overtime or bonuses
Add employee pension deduction:
1. Go to the Company menu and select ‘Alter Payments / Deductions’
2. Click on ‘Add New’
3. Click ‘No’ to the message asking if you want to use the wizard
4. Enter the Name of the pension deduction
5. In the Category field select ‘Apply After Tax & NI Calculation’
6. In the + or - field, select ‘Deduction’
7. In the Type field, select ‘Percentage’
8. In the Range check field, leave the default as ‘None’
9. In the Report Group field, leave the default as ‘<None>’
10. When Clear Totals field is set to ‘Annually’, during Year-end Restart the year to-date total for this pension deduction will be clear along with other year to-date totals
11. Tick the ‘Pension’ box
12. Tick the ‘Subtract Basic Rate Tax’ box
13. Click the ‘% Settings’ and then tick all the pay elements you want the pension deduction to be calculated on
14. Click ‘OK’ on the Percentage calculation screen
15. Click ‘OK’ on the Settings for New Payment/Deduction screen to save the new employee pension deduction
Add employer pension deduction:
1. Go to the Company menu and select ‘Alter Payments / Deductions’
2. Click on ‘Add New’
3. Click ‘No’ to the message asking if you want to use the wizard
4. Enter the Name of the pension deduction
5. In the Category field select ‘Display Item Only’ This option is chosen so the employee’s pay isn’t affected. If you don’t want to show the employer’s deduction on the employee’s payslip, select ‘Display Item Only – Hidden from Payslip’
6. In the + or - field, select ‘Deduction’
7. In the Type field, select ‘Percentage’
8. In the Range check field, leave the default as ‘None’
9. In the Report Group field, leave the default as ‘<None>’
10. When Clear Totals field is set to ‘Annually’, during Year-end Restart the year to date total for this pension deduction will be cleared along with other year to-date totals
11. Tick the ‘Pension’ box
12. Click the ‘% Settings’ and then tick all the pay elements you want the pension deduction to be calculated on
13. Click ‘OK’ on the Percentage calculation screen
14. Click ‘OK’ on the Settings for New Payment/Deduction screen to save the new employer pension deduction
Enter percentage for the employee and employer pension deduction:
1. Go to the Company menu and select ‘Alter Payments / Deductions’
2. Next to the employee pension deduction, click in the ‘Standard’ field and enter the
default percentage
3. Next to the employer pension deduction, click in the ‘Standard’ field and enter the default percentage
Configure Qualifying Earnings:
1. Go to the Pension menu and select ‘Configure Earnings’
2. Tick ‘Qualifying Earnings’ box for all pay elements to include in employees’ total earnings when payroll assesses employees for automatic enrolment
3. Click ‘OK’
Additional Software and Services Available
IRIS AE Suite™
The IRIS AE Suite™ works seamlessly with all IRIS payrolls to easily manage auto enrolment. It will assess employees as part of your payroll run, deduct the necessary calculations, produce files in the right format for your pension provider* and generate the necessary employee communications.
IRIS OpenPayslips
Instantly publish electronic payslips to a secure portal which employees can access from their mobile phone, tablet or PC. IRIS OpenPayslips cuts payslip distribution time to zero and is included as standard with the IRIS AE Suite™.
IRIS Auto Enrolment Training Seminars
Choose from a range of IRIS training seminars to ensure you understand both auto enrolment legislation and how to implement it within your IRIS software.
Useful numbers
HMRC online service helpdesk | HMRC employer helpline |
Tel: 0300 200 3600 Fax: 0844 366 7828 Email: helpdesk@ir-efile.gov.uk | Tel: 0300 200 3200 Tel: 0300 200 3211 (new business) |
Contact Sales (including stationery sales)
For IRIS Payrolls | For Earnie Payrolls |
Tel: 0844 815 5700 Email: sales@iris.co.uk | Tel: 0844 815 5677 Email: earniesales@iris.co.uk |
Contact support
Your Product | Phone | |
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IRIS Payroll Business | 0844 815 5661 | |
IRIS Bureau Payroll | 0844 815 5661 | |
IRIS Payroll Professional | 0844 815 5671 | |
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Earnie or Earnie IQ | 0844 815 5671 |