What causes a pro rata calculation?This calculation is used when: - Your employee turns 22 after your process date, but in the same tax period as the process date.
- A postponement was applied which expires after your process date, but in the same tax period as the process date.
When this happens, the Pension Assessment enrols the employee into your workplace pension scheme in the tax period you're processing. However, no contributions are calculated because as of the day they are paid, they aren't a member of the pension scheme - their enrolment date is a later date. The employee and employer pension contributions must still be paid from the employee's enrolment date until the end of the tax period that they were enrolled in, which is what the pro rata calculation covers. The Pensions Module automatically calculates the pro rata contribution and adds it to the normal contributions due in the employee's next pay run. Click here to see an example of when a pro rata pension contribution is required > In this example, our employee: - Turns 22 years old on 30 August.
- Is paid on the 25th of each month.
- Already meets the wage and UK worker criteria for automatic enrolment.
What happens when the 25 August pay run is processed? - 25 August falls within tax month 5, which runs from 6th August to 5th September.
 TIP: For further information on tax periods, see our Tax week and tax month calendar > - When the Pension Assessment is run while processing this pay run the employee's status becomes Eligible jobholder, and the Pension Assessment enrols them into the pension scheme.
- However, because the employee only became eligible for automatic enrolment as of 30 August when they turned 22, their enrolment date is set as 30 August.
- Because this employee's enrolment date is after the date they were paid, no contributions are due in the 25 August pay run.
What happens when 25 September is processed? - When the next pay run for 25 September is processed, the Pensions Module automatically adds the pro rata contribution for 30 August to 5 September to the normal contribution due for September.
Does a pro rata calculation always occur?No, in most cases when an employee meets the age, wage and UK worker criteria and becomes eligible for automatic enrolment their enrolment date is set as your process date. The employee's pension contributions then start to calculate immediately, for the whole tax period that they were enrolled in. For salary sacrifice schemes, the Pensions Module pro ratas the employer contributions but doesn't pro rata the employee contributions. An employee agrees to have a set amount taken from their salary each period in this type of scheme and you mustn't amend this.
How is a pension pro rata contribution calculated?Now that we've looked at when a pro rata contribution is required, let's run through how it's calculated.  NOTE: Additional voluntary contributions (AVCs) aren't included in a pro rata calculation.
The pro rata calculation((A ÷ B) x C) x D = Employee or employer pro rata contribution | A | Number of days in the tax period from the date the employee becomes enrolled. | | B | Total number of days in the tax period in which the employee is assessed and enrolled. | | C | Employee's pensionable pay for the pay period. | | D | The employee or employer's pension contribution rate, as required. | Click here to check the number of days in each tax month > | Tax month | Days in tax month | Dates of tax month | | Tax month 1 | 30 | 6 April - 5 May | | Tax month 2 | 31 | 6 May - 5 June | | Tax month 3 | 30 | 6 June - 5 July | | Tax month 4 | 31 | 6 July - 5 August | | Tax month 5 | 31 | 6 August - 5 September | | Tax month 6 | 30 | 6 September - 5 October | | Tax month 7 | 31 | 6 October - 5 November | | Tax month 8 | 30 | 6 November - 5 December | | Tax month 9 | 31 | 6 December - 5 January | | Tax month 10 | 31 | 6 January - 5 February | | Tax month 11 | 28 (29 in a leap year) | 6 February - 5 March | | Tax month 12 | 31 | 6 March - 5 April |
Example calculation You can click the option below to view a full example of a pro rata contribution, including both employee and employer calculations. NOTE: If your pension scheme uses qualifying earnings, this is still factored into the contribution calculation that is then pro rata'd down. Find out more in our guide on which settings are used to calculate pension contributions? Click here to see an example of a pro rata calculation > In this example: - The employee becomes an eligible jobholder on their 22nd birthday on 29 June.
- The payroll processing date is 25 June.
- The employee's pensionable pay is £2000 each month.
- The employee's pension contribution rate is 5%.
- The employer's pension contribution rate is 3%.
Employee contribution calculation When the payroll for 25 June is processed the employee is automatically enrolled with an enrolment date of 29 June, which falls in tax month 3. This means they've been enrolled for 7 days in the tax month, from 29 June to 5 July. There are 30 days in total in tax month 3. We can now work out the employee's pro rata pension contribution using the pro rata calculation. - ((7 ÷ 30) x 2000) x 5%
- = (0.2333 x 2000) x 5%
- = 466.60 x 5 % = £23.33
The employee's pro rata pension contribution for tax month 3 is £23.33. As the employee has already been paid in month 3, the pro rata value must be added to the following month's pension contribution. Let's look at the next pay run now. In tax month 4 the employee pays a full month's pension contribution of 5% of their pensionable pay, plus the pro rata amount from month 3. - Month 4 contribution = £2000 x 5% = £100
- Plus the month 3 pro rata amount = £100 + £23.33 = £123.33.
The total employee pension contribution is £123.33 in their month 4 pay run. Normal pension rules apply, so if the Deduct Before Tax check box isn't selected in your pension scheme settings, you should deduct the basic rate of tax from the total pension contribution. In the above example, you'd deduct 20% from £123.33.
TIP: For more information about what affects pension calculations in Sage 50 Payroll, visit our guide on What is used to calculate pension values?
Employer contribution calculation Using the same example and calculation, we can work out the employer's pro rata pension contribution amount. - ((7 ÷ 30) x 2000) x 3%
- = (0.2333 x 2000) x 3%
- = 466.60 x 3 % = £14.00
This means the employer's pro rata pension contribution for tax month 3 is £14.00. As the employee has already been paid in month 3, the pro rata must be added to the following month's pension contribution value. In tax month 4 the employer pays a full month's pension contribution of 3% of the employee's pensionable pay, plus the pro rata amount from month 3. - Month 4 = 2000 x 3% = £60.00
- Plus the pro rata amount = £14.00 + £60.00 = £74.00
The employer's pension contribution is £74.00 in the month 4 pay run. [BCB:257:UKI - Personal content block - John:ECB]
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