Employer FAQs
Before Implementation
Who is a salary sacrifice pension scheme beneficial for
Contractual changes
Contractual changes - New starters
WIll the pension provider change?
Do I need to inform my pension provider?
Will Mintago inform my pension provider?
Will Pension reports change?
Will the payslip show the full gross pay
Will the contribution amounts change
Will the contribution basis change
What are Qualifying Earnings
What is Basic Pay (Tier/Set 1)
What is All Pay (Tier/Set 3)
What is 85% of Earnings (Tier/Set 2)
What is a Net Pay Arrangement scheme
What is Relief at Source scheme
Will employees lose their tax relief once on a salsac pension
Considerations
Statutory Maternity Payments
Other financial impacts
Can employees sacrifice their bonus/commission
Is moving all employees to salsac legitimate
During Implementation
What support is available during setup
Steps after consultation letter
How do we ensure NMW compliance
Will Mintgago do NMW checks
Employee requests to go below NMW
Do I need two pension schemes
After implementation
Can employees opt in and out
How do employees opt in and out
Pension change requests
Before Implementation
Who is a Salary Sacrifice pension scheme beneficial for?
A salary sacrifice pension scheme can be beneficial for both employees and employers. Both employees and employers will no longer be paying national insurance on employee pension contributions, so both parties make a saving. Some employers may choose to give their 15% saving back to their employees either by way of increased pension contributions, or by providing other benefits but it’s up to the employer how they choose to utilise their savings.
Do I need to change contracts for employees moving to a pension salary sacrifice?
No, not for your existing staff. The Consultation email Mintago send to your employees includes a contractual change clause, so all current employees do not require a new contract to be issued.
What happens with employees who join the business after the consultation period has started?
You will need to update your contracts for all new employees to include the agreement to sacrifice their pay in return for a pension contribution. Your pension provider’s website should provide you with template wording if needed.
Will the pension provider change?
No, your pension provider does not change, it’s just the way your pension is deducted which changes.
Do I need to inform my pension provider?
This will depend on your pension provider. Mintago will supply you with detailed guidance on what action is required for your pension provider.
Will Mintago contact our pension provider?
No, we are unable to speak with your pension provider due to authorisation but we will provide you and your payroll team with the steps required to make the change to your pension scheme and submissions.
Will my pension reports change?
Yes, once on a salary sacrifice pension the upload to your pension provider will reflect a zero employee contribution, and the employer contribution will include the employee contribution as well. Therefore, the uploads will only show an employer contribution made up of employer + employee amounts.
Will the payslip show the full gross pay?
Payslips will still show the full, gross pay, but will also show a salary sacrifice deduction which reduces the salary for tax and National insurance purposes.
Will the contribution amounts change?
No, the total amount or percentages paid into the pension scheme will not change.
The employer's contribution percentage and amount also does not change. However, as the employer has “withheld” the employee’s sacrificed amounts, they will add this to their existing employer contribution to reflect a larger, total employer contribution (i.e. 5% employee + 3% employer = 8% new employer). Because of this, some payslips will show the employer contribution as the new total amount (such as on Sage and Brightpay payslips).
Will the pensionable pay basis change?
No, we will ensure that the pensionable pay basis doesn’t change when moving to a salary sacrifice basis. This is to ensure you and your employees do not see a dramatic change in pension contribution amounts.
What are Qualifying Earnings?
The pensionable pay basis of “Qualifying Earnings” relates to which aspects of an employee’s pay are pensionable and how much of this pay is considered in the pension calculation. If you are using this basis, all “earnings” must be included in the pension calculation so this must include salary, bonus, commission, overtime, holiday pay etc. The total contribution must meet a minimum of 8%, with the employer contributing a minimum of 3%.
What is Basic Pay?
The pensionable pay basis of “Basic Pay” relates to which aspects of an employee’s pay are pensionable and how much of this pay is considered in the pension calculation. If you are using this certification, then you can use just the base salary to calculate the pension contribution and exclude other pay elements such as bonus, commission, overtime etc. Pensionable earnings start at £1 and have no cap. However, the total contribution must meet a minimum of 9%, with the employer contributing at least 4%. This is sometimes referred to at Tier 1 or Set 1. You will need to renew your certification every 12-18 months with your pension provider.
What is All Pay?
The pensionable pay basis of “All Pay” relates to which aspects of an employee’s pay are pensionable and how much of this pay is considered in the pension calculation. If you are using this certification, all “earnings” must be included in the pension calculation so this will include salary, bonus, commission, overtime, holiday pay etc. The total contribution must meet a minimum of 7%, with the employer contribution at least 3%. This is sometimes referred to at Tier 3 or Set 3. You will need to renew your certification every 12-18 months with your pension provider.
What is 85% of earnings?
This is a complex method and rarely used due its manual requirements and is not supported by any payroll software.
The pensionable pay basis of “85% of earnings” relates to which aspects of an employee’s pay are pensionable and how much of this pay is considered in the pension calculation. If you are using this certification, you will need to pension the base salary as a minimum and can exclude other pay elements such as bonus, commission, overtime, holiday pay etc but will need to include them in your final calculation before renewing this certification. The total contribution must meet a minimum of 8%, with the employer contribution at least 3%. This is sometimes referred to at Tier 2 or Set 2.
You will need to renew your certification every 12-18 months with your pension provider and carry out a manual calculation to ensure you have, and will remain compliant with the scheme for the next period of renewal. To ensure compliance, you will need to include all other pay elements in your calculation to check that the pensionable pay is at least 85% of the total.
What is a Net Pay Arrangement (NPA) Scheme
A Net Pay Arrangement scheme is where a pension contribution is applied to the employee’s pay before tax is calculated. This differs from a salary sacrifice pension as employees will be paying national insurance on their pension contributions when part of a NPA pension scheme, but don’t when on a salary sacrifice scheme, so saving their take-home pay increases. Pension providers who use NPA as standard are Smart Pensions and Now Pensions.
What is a Relief at Source Scheme?
On a RAS scheme, employees will be contributing 80% of their pension from their take-home pay, and be receiving 20% in tax relief from the Government refunded directly into their pension pot. So the amount into their pension pot is 100% of the expected contribution.
This is great news for employees on a RAS scheme who are not paying any tax, as they receive 20% additional pension contributions into their pension pot.
This is not such great news for employees who are paying 40% or 45% in tax as they will only receive 20% tax relief on their pension amount. Any additional tax paid on pension contributions needs to be manually claimed back by the employee. This can be done via HMRCs site, on a self-assessment form, or by post. They have 4 years (including current tax year) to claim this back. Any refunds will be paid directly into the employee’s bank account and not into their pension scheme.
Will employees lose their tax relief on a salary sacrifice pension?
Once on a salary sacrifice pension, employees will contribute 100% of their pension via their payslip (e.g. the full 5%). This is deducted before tax and national insurance are calculated, reducing their taxable pay. Therefore, no tax relief needs to be refunded as employees are now receiving this via their payslip. Employees will see their tax and national insurance amounts reduce as a result, and see an increase in their take-home pay.
CONSIDERATIONS
Statutory Maternity Pay (SMP) & Salary Sacrifice
Calculating the average wage
SMP is paid at 90% of your “average wage” for the first 6 weeks. The following 33 weeks are paid at the statutory rate.
The “average wage” will be based on earnings within a set period from before the baby’s due date. If a salary sacrifice was in place during that period, the “average wage” will be based on the reduced salary (post-sacrifice).
Pension Contributions: Statutory Pay cannot be reduced by any salary sacrifice deduction (including pensions) and must be paid in full. However, any enhanced pay or KIT days can be considered for pension purposes.
If your employee is currently enrolled in a non-salary sacrifice pension deduction
The employee contribution will be based on the actual pay in each pay period at the same percentage as previously in place before the employee started their leave.
The employer contribution will be based on the full time salary as if the employee were still in full time work at the same percentage as previously in place before the employee started their leave.
If your employee is currently enrolled in a salary sacrifice pension (or will be during their parental leave)
The employee contribution becomes the employer's responsibility and must be kept at the same level as if the employee were still in full time work using the same percentage as previously in place before the employee started their leave. Only non-statutory pay can be reduced by a sacrificed amount such as KIT days or top-up pay. No deduction can be made from their statutory pay.
The employer contribution is made up of a total of employee + employer contribution and must be based on the employee’s salary before leave started and based at the same percentage. This can only be reduced by any salary sacrificed pension the employee might have from their non-statutory pay.
Therefore, the employer should calculate the total contribution (employee + employer) based on the full salary as if the employee were still at work, making up any shortfall to this amount in each pay period.
Apart from maternity pay, is there anything else that could be impacted by Pension salary sacrifice?
Mortgages
- When applying for a mortgage, most lenders don’t consider a pension contribution to be a “commitment” as you can opt out at any time. Therefore, this type of deduction is ignored and the full gross pay is used as the basis of lending criteria. We have found one lender who might consider the salary sacrifice negatively and that is Santander Bank. Please check with your broker before completing your application. When applying, we recommend that you provide 3 x payslips as these will show your full gross reference salary, (pre salary sacrifice) pay rather than a P60 which will only reflect your taxable pay.
Leave Pay
- Sick pay and holiday pay wont be affected by a salary sacrifice as your employer will still pay any holiday pay or enhanced sick pay at the same salary level before the sacrifice is considered (know as the reference salary).
Earnings-assessed Applications
- Where an assessment of gross pay is required, it will be the reduced salary which is taken into account, thus reducing the income reportable for earnings-assessed applications.
Student Loans
- A salary sacrifice will reduce the amount of student/postgraduate loan repayments as the calculations are based on the taxable gross pay, so the reduced salary after the salary sacrifice deduction.
Other considerations
- Employees might also look to reduce their salary for some of the following reasons:
a. Reduce salary below £100,000 to negate a reduction in your personal allowance
b. Reduce salary into a lower tax band
c. Reduce salary for Child Benefit eligibility
d. Reduce salary for eligibility for Government funded support
Note that reducing a salary below £125 a week will mean employees are no longer eligible for NIC credits or some statutory payments. To ensure no negative impact, we do not recommend anyone is provided a salary sacrifice deduction which would reduce a workers pay to near this lower earnings limit.
Can employees sacrifice their bonus/commission?
If an employee requests to sacrifice some or all of their bonus into their pension, you will need to provide your employee with a written agreement which must be in place before the bonus is provided and sacrificed. This agreement is required because your employee is requesting to reduce their pay in return for a benefit - in this case a pension contribution and so must be agreed between both parties.
Is moving all of our eligible employees to a salary sacrifice pension legitimate?
Yes, HMRC guidance allow employers to move all employees to a salary sacrifice pension deduction but there are actions which need to be in place beforehand. Employees should be:
informed of the change ahead of implementation
given notice of when the change will take place
provided with a contractual change variance notification
Given the option of remaining on a non-salary sacrifice deduction
The employer may specify that if an employee has not indicated his/her wish not to participate in the changes by a certain date, the absence of an “opt out” will be regarded as an “opt in”. This approach is often used when wholesale changes to all employees’ terms and conditions are proposed. For example, changes to the employer’s occupational pension scheme. When these conditions have been satisfied, the employees have indicated their agreement to the variation by their conduct and the revised agreement is legally binding on both parties
See HMRC link EIM24753 for further reading.
Mintago can undertake the entire process for you in full compliance with HMRC requirements, reducing both your admin and time.
DURING IMPLEMENTATION
What support is available during setup?
Mintago are available throughout the process to answer any queries which may arise both from yourselves and from your payroll team. We are happy to respond via email or to jump on a call if needed so please feel free to reach out.
I’ve just launched Mintago across my team and Pension consultation emails have been sent - what are the next steps?
a.During the consultation period, Mintago will collate responses from any employees who request not to be moved to the new pension deduction. We will provide you and your payroll team with a list of these employees at the end of the consultation period.
b. During this time, Mintago will also provide guidance notes to both you and your payroll team detailing how to implement the salary sacrifice pension scheme on your payroll software and with your pension provider. We are on hand if any queries arise and can jump on a call to help you through the process.
c. Once implemented, Mintago will check a minimum of 3 payslips to confirm the new pension deduction reflects as expected. We will assist your team if any adjustments are required.
How do we ensure National Minimum Wage (NMW) compliance?
Mintago will supply both you and your payroll team with guidance on how to assess your staff for NMW purposes. Any salary sacrifice deduction will impact NMW so a robust process needs to be in place to ensure workers are paid at, or above NMW in each pay period. Ultimately, it is the employer’s responsibility to ensure employees are paid at least NMW. Some payroll providers will assess your employees for you but you need to confirm this with them so you are sure who is responsible for this task.
If you find that a salary sacrifice deduction will take an employee below the NMW, you will need to ensure they remain enrolled on your non-salary sacrifice workplace pension scheme.
Will Mintago do the minimum wage checks for us?
HMRC states it is the employers responsibility to ensure the minimum wage is not breached. You will need to decide who is responsible for these checks, be it you or your payroll provider and ensure this is clear between both parties. Mintago will provide both you and your payroll team with guidance on how to assess your staff for eligibility for a salary sacrifice pension deduction.
My employee said it was ok to reduce them below NMW, is this ok?
No, you are not permitted to reduce your employee’s salary below the national minimum wage even if they have requested it. Instead, these employees will need to remain on your non-salary sacrifice workplace pension scheme.
Do I need to keep a second scheme open for employees who dont want to be part of these changes?
Yes, you will need to keep your existing non-salary sacrifice workplace pension scheme available for employees who do not want to, or who are unable to move to a salary sacrifice pension deduction.
AFTER IMPLEMENTATION
What if employees want to opt in/out of Pension salary sacrifice at a later date?
Some companies restrict the amount of changes an employee may request in a 12-month period but this is a company decision and should be clearly communicated to staff. There are no legislation rules in place to restrict this.
How can my employees opt in or out of the new pension?
OPT IN: Should employees wish to join the salary sacrifice scheme, they should request this in writing to their employer. The payroll team will then add them to the pension scheme.
SWAP SCHEMES: Should employees wish to move from a non-salary sacrifice pension scheme to the salary sacrifice scheme, or vise versa, this should be requested in writing to their employer. The payroll team will then apply this change. There are no restrictions as to how many times an employee may wish to move schemes but employers may wish to restrict this to mitigate additional admin. Every time an employee joins a salary sacrifice scheme, you will need to provide them with a contractual change clause if this is not already written into their contract.
LEAVING THE WORKPLACE PENSION: When an employee wishes to leave the workplace pension scheme altogether, and no longer make any contributions, they will need to log into their personal online pension providers account to request this (or complete a form depending on the pension provider). The pension provider will then inform the employer of the request. The payroll team will then remove the employee from all workplace pension schemes.The request will be either to “opt out” or “Cease contributions”, depending on how long they have been enrolled - see below.
OPT OUT If leaving the scheme within 30 days of enrolment, employees (and employer) will receive a refund of any contributions paid to the pension provider. This is known as opting out. The refund should be applied to the employee's next payslip in the same way it was deducted (i.e. a gross deduction will be refunded as a gross payment).
CEASE CONTRIBUTIONS If leaving the scheme after 30 days of enrolment, the employee will request to cease contributions. No refund will be provided but any contributions paid into the scheme will remain the employees personal funds and be available once they reach retirement.
Can employees still increase their contributions?
Yes, employees can still make requests to change their pension contributions but you’ll still need to keep them above the minimum percentage, typically 5%. With each change, you will need to give your employee a contractual change agreement. If employees make the change request via their Mintago platform, as soon as you approve this, we’ll email you and your employee a copy of the contractual change variation, taking the admin burden from you.