Before you start First, check with your pension provider that the employee can pay their bonus into the pension scheme. To be able to pay a bonus into a pension scheme, the employee must be a member of a Defined Contribution pension scheme. There's a limit to the annual tax-free pension contributions an employee can pay into their pension.  NOTE: If you're not certain of the remaining allowance for your employee, contact your pension provider.
Bonus payment settings When an employee sacrifices their bonus into a pension scheme, it's tax and National Insurance (NI) free. NOTE: This is only the case when an employee sacrifices their bonus as a contribution to their pension scheme. A normal bonus payment is subject to tax and NI. The way you process the bonus payment in this scenario depends on whether it's a deduct before or after-tax pension scheme. ▼ How do I check this? - Select Company then Pension Schemes.
- Select the pension scheme assigned to the employee in question and select Edit.
- Go to the Employee tab and check the checkbox beside Deduct Before Tax.
Select the relevant option below to find out how to set up your payment. ▼ Deduct after tax pension Create a post-tax and post NI pay element to pay this bonus to the employee. To ensure you only use this pay element correctly, we recommend you name it clearly, such as 'Bonus sacrifice'. For help with creating this, visit our set-up pre and post-tax and NI pay elements. Only use this payment when an employee sacrifices a bonus into their pension scheme. To pay a bonus in an employee's net pay, use a payment subject to tax and NI. ▼ Deduct before tax pension Create a pre-tax and post NI pay element to pay this bonus to the employee. To ensure you only use this pay element correctly, we recommend you name it clearly, such as 'Bonus sacrifice'. For help with creating this, visit our set-up pre and post-tax and NI pay elements. Only use this payment when an employee sacrifices a bonus into their pension scheme. To pay a bonus in an employee's net pay, use a payment subject to tax and NI.
Process the contribution Click the relevant option below for the steps to process the bonus as the required type of pension contribution. ▼ Employee contribution Check the normal contribution for the period - Set the process date to the pay date you're due to pay the bonus.
- Select the required employee on your employee list.
- Select Payroll then Enter Payments.
- Enter the correct payments for the period, not including the bonus.
- Go to the Summary tab in Enter Payments.
- Note the Current value against Pension Contributions.
Calculate and process the total contribution To work out the total contribution, add the normal pension contribution to the amount of bonus to pay into the pension. Process the amount you calculate using the steps below. - In Enter Payments, add the bonus to the employee's payments.
- Click the Employee button in the top left of Enter Payments to access the employee's record.
- Click the Pensions tab, then click Manage Schemes.
- Select the employee's pension scheme and click Edit.
- Note the current Employee Contributions settings, then set the dropdown to Fixed Amount and enter the total contribution amount in the box to the right.
- Click OK, then click Close.
- Click Save in the employee record, then click Close.
The employee contribution in Enter Payments is now the fixed amount from the employee record. ▼ Employer contribution Before you start Unless it's part of your scheme or contract, you don't need to increase the employer contribution. This isn't normally part of bonus sacrifice. If you've checked and you do need to process the bonus as an employer contribution, continue to follow this section. Calculate and amend the contribution Follow the steps below to find out how to edit the employer contribution. If you aren't sure whether to pay employer pension on the bonus, contact your pension provider for advice. Check the normal contribution for the period - Set the process date to the pay date you're due to pay the bonus.
- Select the required employee on your employee list.
- Select Payroll then Enter Payments.
- Enter the correct payments for the period, not including the bonus.
- Select the Employer's button in Enter Payments.
- Note the Pension Current value.
You've now noted the employer pension contribution due for the period, not including the bonus. Calculate and process the total contribution Add the normal employer contribution you noted above to the amount of the bonus going into the pension. Follow the steps below to process the total employer contribution you've calculated. - Go to Enter Payments for this employee.
- If the employee is receiving part of their bonus as a payment, enter the amount due now.
NOTE: If all of the bonus is going into the employer pension, don't process a bonus payment here. - Select the Employee button in the top left of Enter Payments to access the employee's record.
- Go to the Pensions tab then select Manage Schemes.
- Select the pension scheme and click Edit.
- Note the current Employer Contributions settings.
- Set the dropdown to Fixed Amount and enter the required contribution value in the box to the right.
- Select OK then Close.
- Select Save in the employee record, then click Close.
The employer contribution in Enter Payments is now the fixed amount from the employee record.
What's next Check whether you need to revert the employee's contributions to their normal values before you process the next pay period. If so, update the employee's contribution settings as required in their employee record.
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