The Earnings basis is set to determine the pensionable earnings to be used for pension contribution calculation. Based on the pensionable earnings, both employer and employee pension contribution will be calculated. i.e.,
Employer/Employee pension contribution = Pensionable earnings * Deduction value
Pensionable earnings will be calculated based on any of the three different earning basis as listed below:
Qualifying Earning (QE):
If you set earnings basis as Qualifying Earning, pensionable earnings will be calculated based on the auto enrolment earnings threshold. ie., £6,240 is lower and £50,000 is upper level of qualifying earnings a month for 2020-21 tax year.
EXAMPLE 1, If your gross pay is £8,000 and deduction value is set as 1, then pensionable earnings will be £8,000 - £6,240= £1,760
Employer/Employee pension contribution = £1,760 * 1% = £17.6
EXAMPLE 2, If your gross pay is above £50,000 a month, suppose £54,000 and deduction value is set as 1, then pensionable earnings will be calculated as the following.
Pensionable earnings = £50,000 - £6,240 = £43,760
Employer/Employee pension contribution = £43,760 * 1% = £437.6
All pensionable earning:
If you set earnings basis as 'All pensionable earning', then Employee's total earnings or gross pay is considered to calculate the pension contribution.
For example, If your gross pay is £8,000 and deduction value is set as 1, then pensionable earnings will be £8,000.
Employer/Employee pension contribution = £8,000 * 1% = £80
You can set up your own earning limits to calculate the pension contribution.
The Pensionable earnings amount for both employer and employee should be equal. In order to match the pensionable earnings,our application will allow you to set earnings basis only for employee and the same will be automatically set for employer by default.
NOTE : The Earning Basis setting will be applicable only when you choose Deduction Type as "% of Earnings Basis". If deduction type is set to 'Fixed amount' or '% of Basic Pay' it will by default set to All Pensionable Earnings.