Salary Sacrifice Pensions - Re-invest NI savings to the employee's pension scheme

A salary sacrifice pension scheme deducts the pension contribution from the employee's gross pay, before tax or national insurance (NI) are calculated. 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.

Your software can't calculate this automatically, and you must calculate the contributions and amend this manually each period.

The steps you need to take depend on whether you're reinvesting the employee NI savings only, or both the employee and employer NI savings. Click the option you need below for a breakdown of the steps to follow.

 TIP: Ensure you keep clear notes of each value and what it is while you complete the relevant steps below.

• Re-invest employee NI savings only > 

  Calculate the NI Saving

  Your first step is to calculate the NI saving, so you can add it to the normal pension contribution. Note the NI due with their normal pension contribution, and with no pension contribution. The difference between these values is the NI saving you need to add to the employee's pension contribution.

  Let's run through that step by step.

  1. Select the required employee then click Payroll.
  2. Click Change Process Date, set the pay date you're processing next and click OK.
  3. Click Enter Payments and check the payments are correct.
  4. Click the Summary tab.
  5. Make a note of the Employee's National Insurance value under the Current column.
  6. Click the Employee button in the top left of Enter Payments to open the employee's record.
  7. Click the Pension tab then click Manage Schemes.
  8. Select the relevant pension scheme and click Edit.
  9. Next to Employee Contributions, take note of the value entered then set it to 0.00.
  10. Click OK, then Close.
  11. Click Save, then Close.
      • This takes you back to the Summary tab of Enter Payments
  12. Make a note of the National Insurance value now due. Deduct the value noted in Step 5 from this the value to calculate the Employee NI saving.
  13. Open the employees record then click the Pension tab.
  14. Click Manage Schemes, select the relevant scheme and click Edit.
  15. Set the employee contribution back to the normal amount that you noted in Step 9.
  16. Click OK, then Close.
  17. Click Save then Close.

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  Note the normal pension contributions

  Next, note the employee's pension contribution for the period.

  1. Open Enter Payments and check the payments are correct.
  2. In the Payments tab, note the Employee pension contribution amount under the heading Salary Sacrifice.

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  Calculate the contributions including the NI savings

  You've now calculated how much Employee NI the employee saves by being on the salary sacrifice pension scheme, and their normal pension contribution. 

  Add the employee NI saving to the employee contribution. This is the new employee contribution for this period, keep note of this value.

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  Process the updated contribution

  You're now ready to process the contributions including the NI savings.

  1. Double click the relevant employee.
  2. Click the Pension tab then 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. Click OK, then click Close.
  7. Click Save, then Click Close.

  You can now continue to process Payroll as normal. 

  You must recalculate the NI saving each period that you process this arrangement, to ensure it remains correct.

• Re-invest employee and employer NI savings >

  Calculate the NI Saving

  To calculate the NI saving, enter the employee's payments then note the employee and employer National Insurance due. Then set the employee pension contribution rate to zero and note the new NI contributions.

  The difference between these values is the saving to add to their pension contribution. 

  Let's run through that step by step.

  1. Select the required employee then click Payroll.
  2. Click Change Process Date, set the pay date you're processing next and click OK.
  3. Click Enter Payments and check the payments are correct.
  4. Click the Summary tab.
  5. Make a note of the Employee's National Insurance value under the Current column.
  6. Click the Employer's button and note the National Insurance (Current) value.
  7. Click the Employee button in the top left of Enter Payments to open the employee record.
  8. Click the Pension tab then click Manage Schemes.
  9. Select the required pension scheme and click Edit.
  10. Next to Employee Contributions, take note of the value entered then set it to 0.00.
  11. Click OK, then Close.
  12. Click Save, then Close.
      • This takes you to the Summary tab of Enter Payments
  13. Make a note of the National Insurance value. Deduct the value you noted in Step 5 from this the value to calculate the Employee NI saving.
  14. Click the Employer's button and note the National Insurance (Current) value. Deduct the value you noted in Step 6 from this the value to calculate the Employer NI saving.
  15. Open the employees record then click the Pension tab.
  16. Click Manage Schemes, select the relevant scheme and click Edit.
  17. Set the employee contribution back to the correct amount that you noted in step 10.
  18. Click OK, then Close.
  19. Click Save then Close.

  ---

  Note the normal pension contributions

  Next, note the actual employee and employer contributions for the period.

  1. Open Enter Payments and check the payments are correct.
  2. In the Payments tab, note down the Employee pension contribution amount under the heading Salary Sacrifice.
  3. Click the Employers button. 
      TIP: In a salary sacrifice pension scheme, the Pension current value here is the total of both employee and employer contributions.
  4. Deduct the employee contribution you noted in Step 2, from the total contributions you noted in Step 3. This is the employer pension contribution value, take note of this.

  ---

  Calculate the contributions including the NI savings

  You've now noted the value of the employee and employer contributions not including the NI savings. The next step is to combine the two.

  • Add the employee NI saving to the employee contribution. This is the new employee contribution, keep note of this value
  • Add the employer NI saving to the employer contribution. This is the new employer contribution, keep note of this value

  ---

  Process the updated contribution

  You're now ready to process the contributions including the NI savings.

  1. Double click the relevant employee.
  2. Click the Pension tab then Manage Schemes.
  3. Select the relevant pension scheme and click Edit.
  4. On the pension details tab, click the Employee Contributions drop-down menu and select Fixed Amount then enter the new total employee contribution.
  5. Click the Employer Contributions drop-down menu and select Fixed Amount, then enter the new total employer contribution.
  6. Click OK, then click Close.
  7. Click Save, then Click Close.

  You can now continue to process payroll as normal. 

  You must recalculate the NI saving each period that you process this arrangement, to ensure it remains correct.

• Re-invest employer NI savings only >

  Calculate the NI Saving

  To calculate the NI saving, enter the employee's payments then note the employee and employer National Insurance due. Then set the employee pension contribution rate to zero and note the new NI contributions.

  The difference between these values is the saving to add to their pension contribution. 

  Let's run through that step by step.

  1. Select the required employee then click Payroll.
  2. Click Change Process Date, set the pay date you're processing next and click OK.
  3. Click Enter Payments and check the payments are correct.
  4. Click the Employer's button and note the National Insurance (Current) value.
  5. Click the Employee button in the top left of Enter Payments to open the employee record.
  6. Click the Pension tab then click Manage Schemes.
  7. Select the required pension scheme and click Edit.
  8. Next to Employee Contributions, take note of the value entered then set it to 0.00.
  9. Click OK, then Close.
  10. Click Save, then Close.
      • This takes you back to Enter Payments
  11. Click the Employer's button and note the National Insurance (Current) value. Deduct the value you noted in Step 4 from this the value to calculate the Employer NI saving.
  12. Open the employees record then click the Pension tab.
  13. Click Manage Schemes, select the relevant scheme and click Edit.
  14. Set the employee contribution back to the correct amount that you noted in step 8.
  15. Click OK, then Close.
  16. Click Save then Close.

  ---

  Note the normal employer pension contribution

  Next, note the employer contribution for the period without the NI saving.

  1. Open Enter Payments and check the payments are correct.
  2. In the Payments tab, note down the Employee pension contribution amount under the heading Salary Sacrifice.
  3. Click the Employers button. 
      TIP: In a salary sacrifice pension scheme, the Pension current value here is the total of both employee and employer contributions.
  4. Deduct the employee contribution you noted in Step 2, from the total contributions you noted in Step 3. This is the employer pension contribution value, take note of this.

  ---

  Calculate the contributions including the NI savings

  You've now noted the value of the employer contributions not including the NI savings. The next step is to combine the two.

  • Add the employer NI saving to the employer contribution. This is the new employer contribution, keep note of this value

  ---

  Process the updated contribution

  You're now ready to process the contributions including the NI savings.

  1. Double click the relevant employee.
  2. Click the Pension tab then Manage Schemes.
  3. Select the relevant pension scheme and click Edit.
  4. On the pension details tab, click the Employer Contributions drop-down menu and select Fixed Amount, then enter the new total employer contribution.
  5. Click OK, then click Close.
  6. Click Save, then Click Close.

  You can now continue to process payroll as normal. 

  You must recalculate the NI saving each period that you process this arrangement, to ensure it remains correct.

Example

If you'd like to see how this may look for an employee, you can view an example of the calculation >