Your software can automatically reinvest employer National Insurance (NI) savings to an employee's salary sacrifice pension. Important information This feature works differently for employees and directors. For employees, your software calculates the increase to pension contributions in each period you process. For both pro-rata and annual basis directors, this calculation only occurs in the final period of the tax year. This calculates NI savings for the whole tax year. This is to ensure accurate contributions, as the director's NI calculation is cumulative in the final period of the tax year. NOTE: If the employee has more than one salary sacrifice pension scheme, Sage 50 Payroll doesn't calculate any NI saving reinvestment.
Calculation NI saving Your software completes several steps to calculate the NI saving to add to the pension contribution. If you need to reconcile the calculation, run through the steps below. - Note the employee's gross pay before any deductions. You can check this in the Summary tab of Enter Payments.
- Note the total salary sacrifice amount. You can check this in the Salary Sacrifice section of Enter Payments.
- Check if the employee has more than one salary sacrifice deduction.
- If the employee has other salary sacrifice deductions, for example cycle to work, note the value of these.
- Manually calculate the employer's NI contribution based on their original gross pay that you noted in Step 1.
TIP: For help with doing this, visit the employee NI calculations article. - Subtract the salary sacrifice amount you noted in Step 2 from the original gross salary you noted in Step 1. This is the employee's post-sacrifice pay.
- Manually calculate the employer's NI Contribution based on their post-sacrifice pay.
- Subtract the value you calculated in Step 7 from the value you calculated in Step 5.
Pension calculation The next calculation varies a little, depending on whether the employee has another salary sacrifice deduction. Select the relevant option below for your next steps: ▼ The employee has no other salary sacrifice deductions, only their pension scheme In this case, calculate the employer pension contribution and add the NI saving to it. - Calculate the regular employer pension contribution, based on the employee's pre-sacrifice pay.
- Add the employer NI value you calculated in the NI saving section to the employer contribution you calculated in Step 1. This is the total employer contribution including the NI saving.
▼ The employee has another salary sacrifice deduction An example of this is where they have a salary sacrifice pension, and a salary sacrifice deduction such as cycle to work. In this case, you need to calculate what proportion of the total salary sacrifice value belongs to the salary sacrifice pension. NOTE: If the employee has more than one salary sacrifice pension scheme, Sage 50 Payroll doesn't calculate any NI saving reinvestment. Then, use this to calculate the NI saving relating to the salary sacrifice pension scheme. This is the value you then add to the employer pension contribution to establish the total contribution. - Calculate the employee's salary sacrifice pension contribution amount.
- Work out what percentage the pension contribution is of the total salary sacrifice. ▼ Click here to view an example.
The employee has a salary sacrifice pension deduction of £300, and a salary sacrifice cycle to work deduction of £200 per month. These add up to £500, which is the employee's total sacrificed pay per period. However, only the NI saving from the pension of £300 applies to the pension scheme reinvestment. The next step is to calculate what percentage the pension scheme is of the total amount sacrificed. In this example, it's 60%, as £300 is 60% of £500. The percentage in this example is 60%. - Take the overall employer NI saving and multiply it by this percentage, to work out the NI saving for this scheme.
- Calculate the normal employer pension contribution.
- Add the employer NI value from Step 3 to the employer contribution in Step 4. This is the total contribution including the NI saving.
Example calculation We've prepared an example below for a director, using cumulative figures at the end of the tax year. The calculation is the same for employees, except it uses the values for the individual period you're processing instead of totals for the year. ▼ Click here to view the example. Calculate the employer NI saving - Year to date gross pay: £30,000
- Salary sacrifice amount for the year: £1,500
- Gross pay after sacrifice: £30,000 - £1,500 = £28,500
- Employer's NI contribution based on pre-sacrifice pay of £30,000: £4,140
- Employer's NI Contribution using post-sacrifice pay of £28,500: £3,957
- The employer's NI saving from the pension scheme: £4,140 - £3,957 = £183
So, the employer saves £183 in NI contributions due to the salary sacrifice over the tax year. The NI saving above is for the full tax year because director's NI is cumulative in the final period of the year. For employees, the calculation applies to NI for the individual pay period. You're still calculating the difference between the employer's NI based on pre and post-salary sacrifice pay, but just for the one period. Calculate the new pension contribution Next, calculate the pension contribution for the period you're processing. This is the same for directors and employees, because director's pension contributions are per period in the same way as employees. Continuing the example above, the director's 'employee' pension contribution is 5%, and the employer contribution is also 5%. First, calculate the pension contribution without using the NI savings value: - £30,000 per year is £2,500 per month
- The employee contribution is 5% of their Salary: (£2,500 / 100) * 5 = £125
- The employer contribution is also 5% of the director's salary: (£2,500 / 100) * 5 = £125
- The total of employee and employer contributions is £250
Without reinvesting any NI savings to the pension contribution, the total pension contribution for this period is £250. With the option to add employer NI savings enabled, the contribution increases by £183 in the director's final period of the tax year. - Total pension contribution of £250 + £183 = £433
The total pension contribution for the period, including the NI saving, is £433.00.
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