Some employers and employees choose to pay their workplace pension contributions through a salary sacrifice agreement. This means the employee gives up part of their salary (their sacrifice), which the employer pays into their pension, along with their contribution. The employees’ original salary is known as the ‘pre-sacrifice salary’ and their reduced salary after sacrifice as their ‘post-sacrifice salary’.
Please note that the 80% of pay available to the employer under the Coronavirus Job Retention Scheme is calculated based on employees’ post-sacrifice salary.
Pension obligations remain in place
The grant available under the scheme does not change employer’s usual pension contribution payment obligations or processes.
Employers must continue to pay the total pension contribution, comprising both their normal pension contribution and the additional pension contribution arising from the salary sacrifice.
Unfortunately, this means that in the case of salary sacrifice schemes the grant received from the government under the Coronavirus Job Retention Scheme will not cover the full cost of the employer’s pension contribution, even where salaries have been reduced to 80%.
The government is aware of this and has stated that while the grant aims to help employers, it may not cover all the costs of associated benefits in an employee’s remuneration package.
When calculating the pension contribution due for a furloughed worker who has agreed a salary sacrifice arrangement, any contractual obligations, as well as pension obligations under Scheme rules apply as normal.
You can’t ask your employees to temporarily suspend any pension contributions and the statutory minimums still apply. If you usually pay above the statutory minimums and need to reduce the amount you pay, you’ll need to contact us to update your participation agreement.
Changes in pension benefits apply to all staff – furloughed and non-furloughed
You’ll also need to obtain agreement about any reductions from your employees. Changes in pension benefits apply to all staff, not just those who’ve been furloughed. You should take advice about whether any proposed changes to pension contributions affect your contractual obligations to your employees.
If an employee ceases to participate in a salary sacrifice arrangement, you will need to maintain their auto enrolment membership and ensure contributions are now deducted from their furloughed pay as per the auto-enrolment minimum contributions.
You can find out more about how salary sacrifice agreements work for furloughed employees from The Pensions Regulator.