How to treat furlough payments when you use Pensions Salary Sacrifice
The Pensions Regulator issued guidance on the treatment of pensions salary sacrifice for furloughed staff under the Coronavirus Job Retention Scheme (CJRS) on 17th April 2020.
To recap the position, where salary sacrifice is in operation for an employee and a claim is being made under the CJRS, the 80% claim can only be made on the post-sacrifice pay. The Treasury confirmed that furlough grants must be passed to the furloughed employee in full. This means that no deductions can be made for any pension salary sacrifice from the grant and where the grant only is paid during the furlough period this should be treated as the post-sacrifice pay.
If you are using salary sacrifice in relation to your pension contributions
This means that where an employee is receiving furlough grant only the full pension payments will be an employer cost.
Practically, it will be necessary to work out the notional pre-sacrifice pay by treating the furlough pay as your worker’s post-sacrifice amount. You can then calculate the total employer pension contribution as normal based on the notional salary calculation.
Where you top up the worker’s payment to above the level of the furlough grant then salary sacrifice payments can continue to be deducted based on the actual pay figure (grant plus top up) provided that the dedication will not take actual pay below the furlough grant.
Services to support you
We have developed functionality within our system that will now allow us to perform the calculations needed to provide the notional pre-sacrifice figure and ensure your pension calculations are correct.
If the worker is contributing via salary sacrifice and is in receipt of furlough pay only, then you as the employer will need to cover both the employee and employer contributions. Our schedule will demonstrate this for you.
If the worker is in receipt of additional pay above their furlough pay, and this is equal to or greater than their pension contribution, then the employee is able to cover their own contribution.
Our system will perform the relevant calculations to ensure continuations are correct and deductions are paid by the employee, where this is possible, to make it easy for you to comply with TPR guidance.
What do you need to do to allow Johnson Fleming to support you with this?
To support you with this you will simply need to confirm which workers have been furloughed, and if applicable, the split between furlough pay and non-furlough pay.
If you wish for us to support you with this please contact your usual administration contact or respond to us at email@example.com. As there is some set-up work required in order to enable this service, we request that you contact us a week before you are due to send the pay data.
When sending your pay data, we will need the following simple split of pay:
- Total pay (Qualifying Earnings)
- Furlough Pay (Which is pensionable)
- Non Furlough Pay (Which is pensionable)
How will this be shown on the pension schedule?
Workers that have been furloughed will be shown in a separate furlough category on the schedule.
Our schedule will clearly show the key information to will need; notional pre-sacrifice salary, any deductions to be made from the member’s salary and total employer contributions to be paid.
There are no additional fees for utilising this functionality from the current pay reference period onwards.
Can you support us with our previous months calculations?
We can help you with correcting previous month’s calculations should this be needed, however this would be subject to a fee to undertake any corrective work. Please let us know if you would like us to do this.
Get in touch
Here to help
We're here to help you with these complex pension calculations. If you are a Johnson Fleming client please get in touch with your Consultant. If you don't currently work with Johnson Fleming please use the button opposite to arrange a chat with a member of our team.