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Re-invest National Insurance savings to an employee's salary sacrifice pension

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Summary

How to process National Insurance (NI) savings into an employee's pension scheme in Sage 50 Payroll.

Description

A salary sacrifice pension scheme deducts the pension contribution from the employee's pay before tax or NI. This means that both you as the employer, and your employee could pay a lower amount of NI with this type of pension scheme.

Some pension providers allow the re-investment of the NI saving for employee and/or employer into the employee's pension scheme.

 NOTE: If you're not certain whether your pension provider allows NI savings re-investment, contact them to check first. 

Resolution

From v31 of Sage 50 Payroll, your software can automatically add the employer NI saving to the employee's pension. For information on how this function works, visit the how the 'add employer NI savings to pension contribution' feature works article.

If you'd like to reinvest employee NI savings too, it's possible, but requires manual calculations each period. If you want to reinvest less than 100% of the NI saving, this also requires manual calculations each period.

Directors - 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.

Your software completes this calculation in the final period of the tax year for both pro-rata and annual basis directors. This is to ensure accurate contributions, as the director's NI calculation is cumulative in the final period of the tax year.

Re-invest savings

You can reinvest the employer's NI saving by selecting an option in the pension scheme settings.

 NOTE: This feature applies to all employees on the scheme you edit. You can't apply this setting to individual employees on a pension scheme you've assigned to multiple employees. 

  1. Go to Company, then Pension Schemes.
  2. Select the scheme you need to update and select Edit, or if applicable, create a new scheme.
  3. Select the Add Employer NI Savings to pension contribution checkbox.
  4. Select OK, then Close.

Your software now automatically reinvests employer NI savings from the salary sacrifice pension scheme, for employees on the scheme you edited.

This setting takes effect from the next period you process after enabling it.

Employee NI or partial employer NI re-investment

If you'd like to re-invest less than 100% of the employer NI savings, or re-invest employee NI savings, process this manually. 

▼ Click here for help with calculating and processing this.

Re-invest NI savings manually

Sometimes, the employee wants to reinvest their NI savings too, or you only want to re-invest part of the employer NI saving. This is possible, however you need to calculate and process it manually.

Alternative to re-investing employee NI

If your employee wants to contribute their NI savings to their pension, there's ▼ another option you can consider.

As an alternative to the manual workarounds below, consider discussing the option to increase their employee pension contribution rate instead.

This doesn't increase their contributions by the amount of NI they save, but it does still increase their overall pension contribution.

For further advice on this, contact your pension provider.

If you agree this change, follow the amend pension contributions article to update their contributions.

Continue with manual NI re-investment

With this process, you calculate and process the re-investment values in the pension contributions manually.

Your software won't update these calculations each period if the employee's payments change. This means that you need to check the calculation is correct each period.

Select the relevant option below to find out how to re-invest NI in each scenario. 

 NOTE: Follow both sets of steps below if you need to re-invest employee NI savings, and partially re-invest employer savings. 

▼ Re-invest employee NI savings only

Follow each section below to calculate the NI saving, then calculate and process the new pension contributions. 

Calculate the NI Saving and note the employee pension contribution

Your first step is to calculate the NI saving, so you can add it to the normal pension contribution.

Note the NI due for the employee with their normal pension contribution in place, and note it with no pension contribution.

The difference between these values is the NI saving you need to add to the employee's pension contribution.

  1. Select the required employee then click Payroll.
  2. Select Change Process Date, set the pay date you're processing next and select OK.
  3. Go to Enter Payments and check the payments are correct.
  4. In the Payments tab, note the employee's pension contribution amount under Salary Sacrifice heading.
  5. Go to the Summary tab.
  6. Make a note of the employee's National Insurance value under the Current column.
  7. Select the Employee button in the top left of Enter Payments to open the employee's record.
  8. Go to the Pensions tab then select Manage Schemes.
  9. Select the relevant pension scheme and click Edit.
  10. Next to Employee Contributions, take note of their contribution value then set it to 0.00.
  11. Select OK, then Close.
  12. Select Save, then Close.
    • This takes you back to the Summary tab of Enter Payments
  13. Make a note of the National Insurance value, now that there's no pension contribution.
  14. Deduct the value you noted in Step 13 from the value you noted in Step 6. This is the Employee NI saving from the salary sacrifice scheme.

Calculate the new pension contribution

You've now calculated how much Employee NI the employee saves by being on the salary sacrifice pension scheme. In the steps above, you also noted their normal pension contribution. 

Add the employee's NI saving to their normal pension contribution. This is the new employee contribution for this period. Use this value to process the updated contribution below.

Process the new pension contribution

You're now ready to process the contributions for the period including the employee's NI savings.

  1. Double-click the relevant employee.
  2. Go to the Pensions tab then select Manage Schemes.
  3. Select the relevant pension scheme and click Edit.
  4. On the Pension Details tab, click the drop-down menu and select Fixed Amount for Employee contributions.
  5. Enter the new contribution amount in the field to the right of Fixed Amount.
  6. Select OK, then Close.
  7. Select Save, then Close.

You can now continue to process this pay run as normal. 

When you process the next pay period, follow the steps above again to ensure the contributions remain correct.

▼ Partially re-invest employer NI savings 

Follow each section below to calculate the NI saving, then calculate and process the new pension contributions. 

Calculate the NI Saving and note the employer pension contribution

Your first step is to calculate the NI saving, so you can add it to the normal pension contribution.

Note the NI due for the employer with their normal pension contribution in place, and note it with no pension contribution. The difference between these values is the NI saving.

You can then calculate how much of this saving to contribute to the employee's pension.

  1. Select the required employee then click Payroll.
  2. Select Change Process Date, set the pay date you're processing next and select OK.
  3. Go to Enter Payments and check the payments are correct.
  4. In the Payments tab, note the employee's pension contribution amount under the Salary Sacrifice heading.
  5. Select the Employers button and note the:
    • Employer pension contribution beside Pension (Current)
       NOTE:       Due to how salary sacrifice pension schemes work, this value is the the employee's salary sacrifice pension contribution plus the employer contribution. 
    • Employer NI contribution beside National Insurance (Current)
  6. Deduct the employee contribution you noted in Step 4 from the Pension (Current) value.
     TIP: This is the Employer only pension contribution that you will increase later in this process. 
  7. Select the Employee button in the top left of Enter Payments to open the employee's record.
  8. Go to the Pensions tab then select Manage Schemes.
  9. Select the relevant pension scheme and click Edit.
  10. Next to Employee Contributions, take note of their contribution value then set it to 0.00.
  11. Select OK, then Close.
  12. Select Save, then Close.
    • This takes you back to the Summary tab of Enter Payments
  13. Select the Employer's button and note the National Insurance value, now that there's no pension contribution.
  14. Deduct the value you noted in Step 13 from the National Insurance (Current) value you noted in Step 5. This is the Employee NI saving from the salary sacrifice scheme.
  15. Select the Employee button in the top left of Enter Payments to open the employee's record.
  16. Go to the Pensions tab then select Manage Schemes.
  17. Select the relevant pension scheme and click Edit.
  18. Re-enter the employee's original employee contribution that you noted in Step 10.
  19. Select OK then Close.
  20. Select Save then Close.

Calculate the new pension contribution

You've now calculated the Employer NI saved by being on the salary sacrifice pension scheme. You've also noted the normal employer pension contribution value. 

Add the employer's NI saving to the normal employer pension contribution. This is the new employer contribution for this period. use this value to process the updated contribution below.

Process the new pension contribution

You're now ready to process the contributions for the period including the employee's NI savings.

  1. Double-click the relevant employee.
  2. Go to the Pensions tab then select Manage Schemes.
  3. Select the relevant pension scheme and click Edit.
  4. On the pension details tab, click the drop-down menu and select Fixed Amount for Employer contributions.
  5. Enter the new employer contribution amount in the field to the right of Fixed Amount.
  6. Select OK, then Close.
  7. Select Save, then Close.

You can now continue to process this pay run as normal. 

When you process each subsequent pay period, follow the steps above again to ensure the contributions remain correct.