How to ensure pension contributions are calculated correctly during a period of statutory leave
Statutory leave is the paid leave that an employee is entitled to, this includes maternity leave, paternity leave, adoption leave, shared parental leave, parental bereavement leave and sick leave – in addition to statutory annual leave. The rules surrounding the calculation of pension contributions will differ depending on the pension scheme and the statutory leave itself. It is worth noting here that the pensionable earnings used for the employee contribution will differ from those used for the employer contribution.
Calculating pension contributions for maternity, paternity, parental bereavement and adoption leave
An employee:
If an employee is in receipt of Statutory Maternity Pay (SMP), Statutory Paternity Pay (SPP), Statutory Parental Bereavement Pay (SPBP) or Statutory Adoption Pay (SAP) then their employee pension contribution is calculated on the actual earnings received in each pay period for the duration of their paid leave (maximum of 39 weeks for SMP/SAP and 2 weeks for SPBP and SPP).
In circumstances where an employee does not qualify for statutory pay, there will not be a calculation for an employee pension contribution during the ordinary leave period of 26 weeks unless they receive another payment from their employer during this time, such as, occupational pay.
An employer:
The employer pension contribution should remain at the normal level. Meaning it should be based on the pensionable earnings prior to the statutory leave and pay.
Some employees will choose to remain on statutory leave after their paid leave has ended. This is known as ‘additional leave’ and during this time if there are any employee or employer pension contributions, they should be calculated according to the scheme rules or as stated in the contract of employment.
Shared parental pay
Apply the same rules as stated above for maternity. The only exception is where there is a period of unpaid leave, there will not be any pension contributions due from either the employee or the employer.
Statutory sick pay
When an employee is in receipt of SSP, both the employee and the employer pension contributions are based upon the actual payments received in the period. If there is no entitlement to any company sick pay, should there be a policy in place, then it’s likely that the level of pension contributions will decrease for those only in receipt of SSP.
Salary sacrifice pension scheme
If you operate a salary sacrifice pension scheme then the rules are fundamentally the same to those stated above during periods of statutory leave. However, you cannot sacrifice from statutory pay, so during periods of paid statutory leave, the employer will bear the cost of both the employee and employer ‘normal’ contribution.
This article was written by Amy Sadler, a Manager in Price Bailey’s Payroll team. Amy has extensive experience supporting businesses with their pension contributions. If you would like guidance on anything mentioned in the article, you can contact Amy using the form below.
We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.