Workplace pensions

1. About workplace pensions

A workplace pension is a way of saving for your retirement that’s arranged by your employer.

Some workplace pensions are called ‘occupational’, ‘works’, ‘company’ or ‘work-based’ pensions.

How they work

A percentage of your pay is put into the pension scheme automatically every payday.

In most cases, your employer also adds money into the pension scheme for you. You may also get tax relief from the government.

2. Joining a workplace pension

By 2018 all employers must provide a workplace pension scheme. This is called ‘automatic enrolment’.

Your employer must automatically enrol you into a pension scheme and make contributions to your pension if all of the following apply:

Use the staging date calculator to check when you could be enrolled. (Your employer can delay the date they enrol you in certain circumstances.) The calculator is for employers but also works for employees.

When your employer doesn’t have to automatically enrol you

Your employer usually doesn’t have to automatically enrol you if you don’t meet the previous criteria or if any of the following apply:

  • you’ve already given notice to your employer that you’re leaving your job, or they’ve given you notice
  • you have evidence of your lifetime allowance protection (for example, a certificate from HMRC)
  • you’ve already taken a pension arranged through your employer
  • you get a one-off payment from a workplace pension scheme that’s closed (a ‘winding up lump sum’), and then leave and rejoin the same job within 12 months of getting the payment
  • more than 12 months before your staging date, you left (‘opted out’) of a pension arranged through your employer
  • you’re from another EU member state and are in a EU cross-border pension scheme
  • you’re in a limited liability partnership
  • you’re a director without an employment contract and employ at least one other person in your company

You can usually still join their pension if you want to. Your employer can’t refuse.

If your income is low

Your employer doesn’t have to contribute to your pension if you earn less than:

  • £486 per month
  • £112 per week
  • £448 per 4 weeks

What happens when you’re automatically enrolled

Your employer must write to you when you’ve been automatically enrolled into their workplace pension scheme. They must tell you:

  • the date they added you to the pension scheme
  • the type of pension scheme and who runs it
  • how much they’ll contribute and how much you’ll have to pay in
  • how to leave the scheme, if you want to
  • how tax relief applies to you

Delaying your enrolment date

Your employer can delay the date they must enrol you into a pension scheme by up to 3 months.

In some cases they may be able to delay longer if they’ve chosen either:

Your employer must:

  • tell you about the delay in writing
  • let you join in the meantime if you ask to

What your employer can’t do

Your employer can’t:

  • unfairly dismiss or discriminate against you for being in a workplace pension scheme
  • encourage or force you to opt out

3. What you, your employer and the government pay

The amount you and your employer pay towards the pension depends on:

  • what type of workplace pension scheme you’re in
  • whether you’ve been automatically enrolled in a workplace pension or you’ve joined one voluntarily (‘opted in’)

Example

You’re in a defined contribution pension scheme. Each payday:

  • you put in £40
  • your employer puts in £30
  • you get £10 tax relief

A total of £80 goes into your pension.

Work out your contributions using the Money Advice Service’s contributions calculator. You can also use the government’s employer contribution calculator to work out how much your employer will pay in.

Tax relief

The government will usually add money to your workplace pension in the form of tax relief if both of the following apply:

Even if you don’t pay Income Tax, you’ll still get an additional payment if your pension scheme uses ‘relief at source’ to add money to your pension pot.

If you’ve been automatically enrolled

You and your employer must pay a minimum percentage of your ‘qualifying earnings’ into your workplace pension scheme.

‘Qualifying earnings’ are calculated from either:

  • the amount you earn before tax between £5,824 and £43,000 a year
  • your entire salary or wages before tax

Your employer chooses how to work out your qualifying earnings.

The minimum you pay The minimum your employer pays The government pays
0.8% of your ‘qualifying earnings’, rising over time to 4% by April 2019 1% of your ‘qualifying earnings’, rising over time to 3% by April 2019 0.2% of your ‘qualifying earnings’, rising over time to 1% by April 2019

If your employer offers you a defined contribution pension the minimum amounts that must be paid into it could go up in April 2018 and April 2019, if parliament approves the changes. They might not increase if your employer is paying above the minimum amount already.

The minimum amounts could also be higher for you or your employer because of your pension scheme’s rules. They’re higher for most defined benefit schemes.

In other schemes, you and your employer have the option to pay in more than the legal minimum. You can pay in less – as long as your employer puts in enough to meet the legal minimum.

If you’ve voluntarily enrolled in a workplace pension

Your employer must contribute the minimum amount if you earn more than:

  • £486 per month
  • £112 per week
  • £448 per 4 weeks

They don’t have to contribute anything if you earn less than this.

How your take-home pay changes

Joining a workplace pension scheme means that your take-home income will be reduced. But this may:

  • mean you’re entitled to tax credits or an increase in the amount of tax credits you get (although you may not get this until the next tax year)
  • mean you’re entitled to an income-related benefit or an increase in the amount of benefit you get
  • reduce the amount of student loan repayments you need to make

Payments using salary sacrifice

You and your employer may agree to use ‘salary sacrifice’ (sometimes known as a ‘SMART’ scheme).

If you do this, you give up part of your salary and your employer pays this straight into your pension. In some cases, this will mean you and your employer pay less tax and National Insurance.

Ask your employer if they use salary sacrifice.

4. Protection for your pension

How your pension is protected depends on the type of scheme.

Defined contribution pension schemes

If your employer goes bust

Defined contribution pensions are usually run by pension providers, not employers. You won’t lose your pension pot if your employer goes bust.

If your pension provider goes bust

If the pension provider was authorised by the Financial Conduct Authority and can’t pay you, you can get compensation from the Financial Services Compensation Scheme (FSCS).

Trust-based schemes

Some defined contribution schemes are run by a trust appointed by the employer. These are called ‘trust-based schemes’.

You’ll still get your pension if your employer goes out of business. But you might not get as much because the scheme’s running costs will be paid by members’ pension pots instead of the employer.

Defined benefit pension schemes

Your employer is responsible for making sure there’s enough money in a defined benefit pension to pay each member the promised amount.

Your employer can’t touch the money in your pension if they’re in financial trouble.

You’re usually protected by the Pension Protection Fund if your employer goes bust and can’t pay your pension.

The Pension Protection Fund usually pays:

  • 100% compensation if you’ve reached the scheme’s pension age
  • 90% compensation if you’re below the scheme’s pension age

Fraud, theft or bad management

If there’s a shortfall in your company’s pension fund because of fraud or theft, you may be eligible for compensation from the Fraud Compensation Fund.

Contact one of the following organisations if you want to make a complaint about the way your workplace pension scheme is run:

5. Managing your pension

Your pension provider will send you a statement each year to tell you how much is in your pension pot. You can also ask them for an estimate of how much you’ll get when you start taking your pension pot.

What you see on your payslip

You don’t need to do anything to get tax relief at the basic rate on your pension contributions. There are 2 types of arrangements:

  • net pay
  • relief at source

Check with your employer or pension provider which arrangement your workplace pension uses. This determines what you’ll see on your payslip.

‘Net pay’

Your employer takes your contribution from your pay before it’s taxed. You only pay tax on what’s left. This means you get full tax relief, no matter if you pay tax at the basic, higher or additional rate.

The amount you’ll see on your payslip is your contribution plus the tax relief.

You won’t get tax relief if you don’t pay tax, for example because you earn less than the tax threshold.

‘Relief at source’

Your employer takes your pension contribution after taking tax and National Insurance from your pay. However much you earn, your pension provider then adds tax relief to your pension pot at the basic rate.

With ‘relief at source’, the amount you see on your payslip is only your contributions, not the tax relief.

You may be able to claim money back if you pay higher or additional rate Income Tax.

Tracing lost pensions

The Pension Tracing Service could help you find pensions you’ve paid into but lost track of.

Nominate someone to get your pension if you die

You may be able to nominate (choose) someone to get your pension if you die before reaching the scheme’s pension age. You can do this when you first join the pension or by writing to your provider.

Ask your pension provider if you can nominate someone and what they’d get if you die, for example regular payments or lump sums. Check your scheme’s rules about:

  • who you can nominate – some payments can only go a dependant, for example your husband, wife, civil partner or child under 23
  • whether anything can change what the person gets, for example when and how you start taking your pension pot, or the age you die

You can change your nomination at any time. It’s important to keep your nominee’s details up to date.

Sometimes the pension provider can pay the money to someone else, for example if the person you nominated can’t be found or has died.

Taking your pension

Most pension schemes set an age when you can take your pension, usually between 60 and 65. In some circumstances you can take your pension early. The earliest is usually 55.

Some companies offer to help you get money out of your pension before you’re 55. Taking your pension early in this way could mean you pay tax of up to 55%.

If the amount of money in your pension pot is quite small, you may be able to take it all as a lump sum. You can take 25% of it tax free, but you’ll pay Income Tax on the rest.

How you get money from your pension depends on the type of scheme you’re in.

Defined contribution pension schemes

You’ll need to decide how to take your money if you’re in a defined contribution pension scheme.

Defined benefit pension schemes

You may be able to take some money as a tax-free lump sum if you’re in a defined benefit pension scheme – check with your pension provider. You’ll get the rest as a guaranteed amount each year.

6. Changing jobs and taking leave

If you change jobs

Your workplace pension still belongs to you. If you don’t carry on paying into the scheme, the money will remain invested and you’ll get a pension when you reach the scheme’s pension age.

You can join another workplace scheme if you get a new job.

If you do, you may be able to:

Ask your pension providers about your options.

If you move jobs but pay into an old pension, you may not get some of that pension’s benefits – check if they’re only available to current workers.

If you worked at your job for less than 2 years before leaving, you may be able to get a refund on what you’ve contributed. Check with your employer or the pension scheme provider.

During paid leave, you and your employer carry on making pension contributions.

The amount you contribute is based on your actual pay during this time, but your employer pays contributions based on the salary you would have received if you weren’t on leave.

Maternity and other parental leave

You and your employer will continue to make pension contributions if you’re getting paid during maternity leave.

If you’re not getting paid, your employer still has to make pension contributions in the first 26 weeks of your leave (‘Ordinary Maternity Leave’). They have to carry on making contributions afterwards if it’s in your contract. Check your employer’s maternity policy.

Unpaid leave

You may be able to make contributions if you want to – check with your employer or the pension scheme provider.

If you become self-employed or stop working

You may be able to carry on contributing to your workplace pension – ask the scheme provider.

You could use the National Employment Saving Trust (NEST) – a workplace pension scheme that working self-employed people or sole directors of limited companies can use.

You could set up a personal or stakeholder pension.

You can get help with your workplace pension options.

7. If you want to leave your workplace pension scheme

What you do if you want to leave a workplace pension depends on whether you’ve been ‘automatically enrolled’ in it or not.

If you haven’t been automatically enrolled

Check with your employer – they’ll tell you what to do.

If you’ve been automatically enrolled

Your employer will have sent you a letter telling you that you’ve been added to the scheme.

You can leave (called ‘opting out’) if you want to.

If you opt out within a month of your employer adding you to the scheme, you’ll get back any money you’ve already paid in.

You may not be able to get your payments refunded if you opt out later – they’ll usually stay in your pension until you retire.

You can opt out by contacting your pension provider. Your employer must tell you how to do this.

Reducing your payments

You may be able to reduce the amount you contribute to your workplace pension for a short time. Check with both your employer and your pension provider to see if you can do this and how long you can do it for.

Opting back in

You can do this at any time by writing to your employer. They don’t have to accept you back into their workplace scheme if you’ve opted in and then opted out in the past 12 months.

Rejoining the scheme automatically

Your employer will automatically re-enrol you in the scheme every 3 years (from the date you were first enrolled) if you’ve previously left the scheme. They’ll write to you when they do this.

You can leave the scheme again, but only once you’ve been re-enrolled.

When you don’t rejoin automatically

You won’t be automatically re-enrolled if you no longer qualify for the scheme.

Your employer doesn’t have to automatically re-enrol you if you chose to leave the scheme in the 12 months before the date you would have been re-enrolled.

8. Get help

For questions about the specific terms of your workplace pension scheme, talk to your pension provider or your employer.

You can get free, impartial information about your workplace pension options from:

You can get impartial advice about workplace pensions from an independent financial adviser. You’ll usually have to pay for the advice.

For general questions on workplace pensions contact the DWP Workplace Pension Information Line.

DWP Workplace Pension Information Line
Telephone (English): 0345 600 1268
Telephone (Welsh): 0345 600 8187
Textphone: 0345 850 0363
Monday to Friday, 8am to 6pm
Find out about call charges

Only use the information line if you’re a worker – employers should contact The Pensions Regulator.

Problems with being ‘automatically enrolled’

Contact the The Pensions Regulator if you have concerns about the way your employer is dealing with automatic enrolment.

The Pensions Advisory Service may also be able to help you.

If you’re already paying into a personal pension

Check whether it’s better for you to:

  • carry on with just your personal pension
  • stop paying into your personal pension and join your workplace pension
  • keep paying into both

If you’re saving large amounts in pensions

You may have to pay a tax charge if your total savings in workplace pensions and any other personal pension scheme go above your:

If you start taking your pension pot your annual allowance could drop to as low as £10,000.

If your pension scheme is closing

This can happen if your employer decides they don’t want to use a scheme anymore or they can no longer pay their contributions. What happens to the money you paid in depends on the pension scheme you’ve joined.

If you’ve been automatically enrolled, your employer can’t close a pension scheme without automatically enrolling you into another one.

If you’re getting a divorce

You and your spouse or partner will have to tell the court the value of each of your pension pots. You then have different options to work out what happens to your pension when you get a divorce.

Rates and thresholds for employers 2017 to 2018

Unless otherwise stated, the figures quoted apply between 6 April 2017 and 5 April 2018.

PAYE tax and Class 1 National Insurance contributions

You normally operate PAYE as part of your payroll so HM Revenue and Customs (HMRC) can collect Income Tax and National Insurance from your employees.

Your payroll software will calculate how much tax and National Insurance to deduct from your employees’ pay.

Tax thresholds, rates and codes

The amount of Income Tax you deduct from your employees depends on their tax code and how much of their taxable income is above their Personal Allowance.

PAYE tax rates, thresholds and codes 2017 to 2018
Employee personal allowance £221 per week
£958 per month
£11,500 per year
UK Basic tax rate 20% on annual earnings above the PAYE tax threshold and up to £33,500
UK Higher tax rate 40% on annual earnings from £33,501 to £150,000
UK Additional tax rate 45% on annual earnings above £150,000
Scottish Basic tax rate 20% on annual earnings above the PAYE tax threshold and up to £31,500
Scottish Higher tax rate 40% on annual earnings from £31,501 to £150,000
Scottish Additional tax rate 45% on annual earnings above £150,000
Emergency tax codes 1150L W1, 1150L M1 or 1150L X

Class 1 National Insurance thresholds

You can only make National Insurance deductions on earnings above the Lower Earnings Limit (LEL).

Class 1 National Insurance thresholds 2017 to 2018
Lower Earnings Limit (LEL) £113 per week
£490 per month
£5,876 per year
Primary Threshold (PT) £157 per week
£680 per month
£8,164 per year
Secondary Threshold (ST) £157 per week
£680 per month
£8,164 per year
Upper Secondary Threshold (under 21) (UST) £866 per week
£3,750 per month
£45,000 per year
Apprentice Upper Secondary Threshold (apprentice under 25) (AUST) £866 per week
£3,750 per month
£45,000 per year
Upper Earnings Limit (UEL) £866 per week
£3,750 per month
£45,000 per year

Class 1 National Insurance rates

Employee (primary) contribution rates

Deduct primary contributions (employee’s National Insurance) from your employees’ pay through PAYE.

National Insurance category letter Earnings at or above LEL up to and including PT Earnings above the PT up to and including UEL Balance of earnings above UEL
A 0% 12% 2%
B 0% 5.85% 2%
C NIL NIL NIL
H (Apprentice under 25) 0% 12% 2%
J 0% 2% 2%
M (under 21) 0% 12% 2%
Z (under 21 – deferment) 0% 2% 2%

Employer (secondary) contribution rates

You pay secondary contributions (employer’s National Insurance) to HMRC as part of your PAYE bill.

Pay employers’ PAYE tax and National Insurance.

National Insurance category letter Earnings at or above LEL up to and including ST Earnings above ST up to and including UEL/UST/AUST Balance of earnings above UEL/UST/AUST
A 0% 13.80% 13.80%
B 0% 13.80% 13.80 %
C 0% 13.80% 13.80%
H (Apprentice under 25) 0% 0% 13.80%
J 0% 13.80% 13.80%
M (under 21) 0% 0% 13.80%
Z (under 21 – deferment) 0% 0% 13.80%

Class 1A National Insurance: expenses and benefits

You must pay Class 1A National Insurance on work benefits you give to your employees, example a company mobile phone. You report and pay Class 1A at the end of each tax year.

NI class 2017 to 2018 rate
Class 1A 13.8%

Pay employers’ Class 1A National Insurance.

Class 1B National Insurance: PAYE Settlement Agreements (PSAs)

You pay Class 1B National Insurance if you have a PSA. This allows you to make one annual payment to cover all the tax and National Insurance due on small or irregular taxable expenses or benefits for your employees.

National Insurance class 2017 to 2018 rate
Class 1B 13.8%

Pay Class 1B National Insurance.

National Minimum Wage

The National Minimum Wage is the minimum pay per hour almost all workers are entitled to by law. Use the National Minimum Wage calculator to check if you’re paying a worker the National Minimum Wage or if you owe them payments from past years.

The rates below apply from 1 April 2017.

Category of worker Hourly rate
Aged 25 and above (national living wage rate) £7.50
Aged 21 to 24 inclusive £7.05
Aged 18 to 20 inclusive £5.60
Aged under 18 (but above compulsory school leaving age) £4.05
Apprentices aged under 19 £3.50
Apprentices aged 19 and over, but in the first year of their apprenticeship £3.50

See National Minimum Wage rates for previous years.

Statutory maternity, paternity, adoption and shared parental pay

Use the maternity and paternity calculator for employers to calculate your employee’s Statutory maternity pay (SMP), paternity or adoption pay, their qualifying week, average weekly earnings and leave period.

Type of payment or recovery 2017 to 2018 rate
SMP – weekly rate for first six weeks 90% of the employee’s average weekly earnings
SMP – weekly rate for remaining weeks £140.98 or 90% of the employee’s average weekly earnings, whichever is lower
Statutory paternity pay (SPP) – weekly rate £140.98 or 90% of the employee’s average weekly earnings, whichever is lower
Statutory adoption pay (SAP) – weekly rate for first six weeks 90% of employee’s average weekly earnings
SAP – weekly rate for remaining weeks £140.98 or 90% of the employee’s average weekly earnings, whichever is lower
Statutory shared parental pay (ShPP) – weekly rate £140.98 or 90% of the employee’s average weekly earnings, whichever is lower
SMP/SPP/ShPP/SAP – proportion of your payments you can recover from HMRC 92% if your total Class 1 National Insurance (both employee and employer contributions) is above £45,000 for the previous tax year

103% if your total Class 1 National Insurance for the previous tax year is £45,000 or lower

Statutory Sick Pay (SSP)

The same weekly SSP rate applies to all employees. However, the amount you must actually pay an employee for each day they’re off work due to illness (the daily rate) depends on the number of ‘qualifying days’ (QDs) they work each week.

Use the SSP calculator to work out your employee’s sick pay, or use the rates below.

Unrounded daily rates Number of QDs in week 1 day to pay 2 days to pay 3 days to pay 4 days to pay 5 days to pay 6 days to pay 7 days to pay
£12.7642 7 £12.77 £25.53 £38.30 £51.06 £63.83 £76.59 £89.35
£14.8916 6 £14.90 £29.79 £44.68 £59.57 £74.46 £89.35
£17.8700 5 £17.87 £35.74 £53.61 £71.48 £89.35
£22.3375 4 £22.34 £44.68 £67.02 £89.35
£29.7833 3 £29.79 £59.57 £89.35
£44.6750 2 £44.68 £89.35
£89.3500 1 £89.35

Student loan recovery

If your employees’ earnings are above the earnings threshold, record their student loan deductions in your payroll software. It will automatically calculate and deduct repayments from their pay.

Rate or threshold 2017 to 2018 rate
Employee earnings threshold for Plan 1 £17,775 per year
£1,481 per month
£341 per week
Employee earnings threshold for Plan 2 £21,000 per year
£1,750 per month
£403 per week
Student loan deductions 9%

Company cars: Advisory Fuel Rates (AFRs)

Use AFRs to work out mileage costs if you provide company cars to your employees.

The rates below apply from 1 December 2016.

Engine size Petrol – amount per mile LPG – amount per mile
1400cc or less 11 pence 7 pence
1401cc to 2000cc 14 pence 9 pence
Over 2000cc 21 pence 13 pence
Engine size Diesel – amount per mile
1600cc or less 9 pence
1601cc to 2000cc 11 pence
Over 2000cc 13 pence

Hybrid cars are treated as either petrol or diesel cars for this purpose.

Employee vehicles: Mileage Allowance Payments (MAPs)

MAPs are what you pay your employees for using their own vehicle for business journeys.

You can pay your employees an ‘approved amount’ of MAPs each year without having to report them to HMRC. To work out the ‘approved amount’, multiply your employee’s business travel miles for the year by the rate per mile for their vehicle.

Find out more about reporting and paying MAPs.

Type of vehicle Rate per business mile 2017 to 2018
Car For tax purposes: 45 pence for the first 10,000 business miles in a tax year, then 25 pence for each subsequent mile

For National Insurance purposes: 45 pence for all business miles

Motorcycle 24 pence for both tax and National Insurance purposes and for all business miles
Cycle 20 pence for both tax and National Insurance purposes and for all business miles

Rates and thresholds for employers 2016 to 2017

Unless otherwise stated, the figures quoted apply between 6 April 2016 and 5 April 2017.

PAYE tax and Class 1 National Insurance contributions

You normally operate PAYE as part of your payroll so HM Revenue and Customs (HMRC) can collect Income Tax and National Insurance from your employees.

Your payroll software will calculate how much tax and National Insurance (NI) to deduct from your employees’ pay.

Tax thresholds, rates and codes

The amount of Income Tax you deduct from your employees depends on their tax code and how much of their taxable income is above their Personal Allowance.

For the tax year 2016 to 2017, the Income Tax information below applies to both Scotland and the rest of the UK (England, Wales and Northern Ireland).

PAYE tax rates, thresholds and codes 2016 to 2017
Employee personal allowance £212 per week
£917 per month
£11,000 per year
Basic tax rate 20% on annual earnings above the PAYE tax threshold and up to £32,000
Higher tax rate 40% on annual earnings from £32,001 to £150,000
Additional tax rate 45% on annual earnings above £150,000
Emergency tax codes 1100L W1, 1100L M1 or 1100L X

Class 1 National Insurance thresholds

You can only make National Insurance (NI) deductions on earnings above the Lower Earnings Limit (LEL).

Class 1 NI thresholds 2016 to 2017
Lower Earnings Limit (LEL) £112 per week
£486 per month
£5,824 per year
Primary Threshold (PT) £155 per week
£672 per month
£8,060 per year
Secondary Threshold (ST) £156 per week
£676 per month
£8,112 per year
Upper Secondary Threshold (under 21) (UST) £827 per week
£3,583 per month
£43,000 per year
Apprentice Upper Secondary Threshold (apprentice under 25) (AUST) £827 per week
£3,583 per month
£43,000 per year
Upper Earnings Limit (UEL) £827 per week
£3,583 per month
£43,000 per year

Class 1 National Insurance rates

Employee (primary) contribution rates

Deduct primary contributions (employee’s National Insurance) from your employees’ pay through PAYE.

NI category letter Earnings at or above LEL up to and including PT Earnings above the PT up to and including UEL Balance of earnings above UEL
A 0% 12% 2%
B 0% 5.85% 2%
C NIL NIL NIL
H (Apprentice under 25) 0% 12% 2%
J 0% 2% 2%
M (under 21) 0% 12% 2%
Z (under 21 – deferment) 0% 2% 2%

Employer (secondary) contribution rates

You pay secondary contributions (employer’s National Insurance) to HMRC as part of your PAYE bill.

Pay employers’ PAYE tax and National Insurance.

NI category letter Earnings at or above LEL up to and including ST Earnings above ST up to and including UEL/UST/AUST Balance of earnings above UEL/UST/AUST
A 0% 13.80% 13.80%
B 0% 13.80% 13.80 %
C 0% 13.80% 13.80%
H (Apprentice under 25) 0% 0% 13.80%
J 0% 13.80% 13.80%
M (under 21) 0% 0% 13.80%
Z (under 21 – deferment) 0% 0% 13.80%

Class 1A National Insurance: expenses and benefits

You must pay Class 1A National Insurance on work benefits you give to your employees, eg a company mobile phone. You report and pay Class 1A at the end of each tax year.

NI class 2016 to 2017 rate
Class 1A 13.8%

Pay employers’ Class 1A National Insurance.

Class 1B National Insurance: PAYE Settlement Agreements (PSAs)

You pay Class 1B National Insurance if you have a PSA. This allows you to make one annual payment to cover all the tax and National Insurance due on small or irregular taxable expenses or benefits for your employees.

NI class 2016 to 2017 rate
Class 1B 13.8%

Pay Class 1B National Insurance.

National Minimum Wage

The National Minimum Wage is the minimum pay per hour almost all workers are entitled to by law. Use the National Minimum Wage calculator to check if you’re paying a worker the National Minimum Wage or if you owe them payments from past years.

The rates below apply from 1 October 2015 and are likely to change again on 1 October 2016.

Category of worker Hourly rate
Aged 21 and above £6.70
Aged 18 to 20 inclusive £5.30
Aged under 18 (but above compulsory school leaving age) £3.87
Apprentices aged under 19 £3.30
Apprentices aged 19 and over, but in the first year of their apprenticeship £3.30

See National Minimum Wage rates for previous years.

Statutory maternity, paternity, adoption and shared parental pay

Use the maternity and paternity calculator for employers to calculate your employee’s SMP, paternity or adoption pay, their qualifying week, average weekly earnings and leave period.

Type of payment or recovery 2016 to 2017 rate
Statutory maternity pay (SMP) – weekly rate for first six weeks 90% of the employee’s average weekly earnings
SMP – weekly rate for remaining weeks £139.58 or 90% of the employee’s average weekly earnings, whichever is lower
Statutory paternity pay (SPP) – weekly rate £139.58 or 90% of the employee’s average weekly earnings, whichever is lower
Statutory adoption pay (SAP) – weekly rate £139.58 or 90% of the employee’s average weekly earnings, whichever is lower
Statutory shared parental pay (ShPP) – weekly rate £139.58 or 90% of the employee’s average weekly earnings, whichever is lower
SMP/SPP/ShPP/SAP – proportion of your payments you can recover from HMRC 92% if your total Class 1 NI (both employee and employer contributions) is above £45,000 for the previous tax year

103% if your total Class 1 NI for the previous tax year is £45,000 or lower

Statutory Sick Pay (SSP)

The same weekly SSP rate applies to all employees. However, the amount you must actually pay an employee for each day they’re off work due to illness (the daily rate) depends on the number of ‘qualifying days’ (QDs) they work each week.

Use the SSP calculator to work out your employee’s sick pay, or use the rates below.

Unrounded daily rates Number of QDs in week 1 day to pay 2 days to pay 3 days to pay 4 days to pay 5 days to pay 6 days to pay 7 days to pay
£12.6357 7 £12.64 £25.28 £37.91 £50.55 £63.18 £75.82 £88.45
£14.7416 6 £14.75 £29.49 £44.23 £58.97 £73.71 £88.45
£17.6900 5 £17.69 £35.38 £53.07 £70.76 £88.45
£22.1125 4 £22.12 £44.23 £66.34 £88.45
£29.4833 3 £29.49 £58.97 £88.45
£44.2250 2 £44.23 £88.45
£88.4500 1 £88.45

Student loan recovery

If your employees’ earnings are above the earnings threshold, record their student loan deductions in your payroll software. It will automatically calculate and deduct repayments from their pay.

Rate or threshold 2016 to 2017 rate
Employee earnings threshold for Plan 1 £17,495 per year
£1,457 per month
£336 per week
Employee earnings threshold for Plan 2 £21,000 per year
£1,750 per month
£403 per week
Student loan deductions 9%

Company cars: Advisory Fuel Rates (AFRs)

Use AFRs to work out mileage costs if you provide company cars to your employees.

The rates below apply from 1 December 2015.

Engine size Petrol – amount per mile LPG – amount per mile
1400cc or less 11 pence 7 pence
1401cc to 2000cc 13 pence 9 pence
Over 2000cc 20 pence 13 pence
Engine size Diesel – amount per mile
1600cc or less 9 pence
1601cc to 2000cc 11 pence
Over 2000cc 13 pence

Hybrid cars are treated as either petrol or diesel cars for this purpose.

Employee vehicles: Mileage Allowance Payments (MAPs)

MAPs are what you pay your employees for using their own vehicle for business journeys.

You can pay your employees an ‘approved amount’ of MAPs each year without having to report them to HMRC. To work out the ‘approved amount’, multiply your employee’s business travel miles for the year by the rate per mile for their vehicle.

Find out more about reporting and paying MAPs.

Type of vehicle Rate per business mile 2016 to 2017
Car For tax purposes: 45 pence for the first 10,000 business miles in a tax year, then 25 pence for each subsequent mile

For NI purposes: 45 pence for all business miles

Motorcycle 24 pence for both tax and NI purposes and for all business miles
Cycle 20 pence for both tax and NI purposes and for all business miles

 

 

PAEROLL comment

We would like to highlight that the National Minimum Wage (NMW) section does not include the new National Living Wage (NLW). Also the statutory payments section does not show that the first six weeks of Statutory Adoption Leave (SAL) is paid at 90% of earnings despite being reported as incorrect in 2015

Employment Allowance

From April 2016, employers will be able to pay 4 full time members of staff at the living wage without incurring employers national insurance.  This is thanks to the increase in the employment allowance increase from £2,000 to £3,000 per year.

The employment allowance was introduced in April 2014 to encourage and support employers to employ more staff without incurring additional employers national insurance contributions.  This is the same reason that the government will now withdraw employment support allowances from sole director companies at the same time.