The typical causes of a pro-rata calculation are: - Your employee turns 22 after your process date, but in the same tax period as the process date
- A pension postponement expired after your process date, but in the same tax period as the process date
- Your cyclical re-enrolment date falls after your process date, but is within the same tax period
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 due because they aren't a member of the pension scheme as of the process date. Pension contributions are still due from the employee's enrolment date until the end of the tax period. This 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. ▼ View an example of when a pro rata pension contribution is required In this example: - The employee is 22 years old on 30 August
- Their payday is the 25th of each month
- They meet the wage and UK worker criteria for automatic enrolment
What happens on the 25 August pay run? - 25 August falls within tax month five, which runs from 6 August to 5 September
TIP: For further information on tax periods, check our tax calendar article. - As the employee is now an Eligible jobholder, the Pension Assessment enrols them into the pension scheme
- The employee's enrolment date is 30 August. This is because the employee only became eligible for automatic enrolment as of 30 August when they turned 22
- Because this employee's enrolment date is after their pay day, no contributions are due in the 25 August pay run
What happens on the 25 September pay run? - The Pensions Module adds the pro rata contribution for 30 August to 5 September to the contributions due for September
Does a pro rata calculation always occur? No, a pro rata only occurs when the enrolment date is after the process date, but in the same tax period. Typically, employees become eligible for automatic enrolment as of the process date, and their enrolment date matches the process date. For salary sacrifice schemes, the Pensions Module prorates 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.
Pension pro rata calculation Find out more about the calculation your software completes below. NOTE: Pro rata calculations don't include additional voluntary contributions (AVCs). 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 of the employee's enrolment. | | C | Employee's pensionable pay for the pay period their enrolment took place. | | D | The employee or employer's pension contribution rate, as required. | ▼ View 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, qualifying earnings bands also prorate in the contribution calculation. ▼ View 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 In the 25 June pay run, the employee's enrolment date is 29 June, which falls in tax month three. This means need to pay pension contributions for seven days in the tax month, from 29 June to 5 July. There are 30 days in total in tax month three, so the pro rata contribution calculation is as follows: - ((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 three is £23.33. The pro rata value adds to the following month's pension contribution. In tax month four, the employee pays a full month's pension contribution, plus the pro rata amount from month three. - Month four contributions = £2000 x 5% = £100
- Plus the month three pro rata amounts = £100 + £23.33 = £123.33
The total employee pension contribution is £123.33 in their month four pay run. If the Deduct Before Tax checkbox is clear in the pension scheme settings, deduct the basic rate of tax from the total pension contribution. In the above example, deduct 20% of £123.33. TIP: For more information on the calculation, find out which settings affect pension calculations in Sage 50 Payroll.
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 three is £14.00. The pro rata adds to the following month's pension contribution value. In tax month four the employer pays a full month's pension contribution, plus the pro rata amount from month three. - 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 four pay run.
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