The Pensions Regulator (TPR) has issued guidance to ‘large’ employers on pension contributions for employees who have agreed to a salary sacrifice arrangement.

It highlighted that when employers are calculating the pension contributions of furloughed workers with a salary sacrifice arrangement, any contractual and pension scheme rule obligations will continue to apply as normal.

It added that the existence of the grant available under the Coronavirus Job Retention Scheme does not change an employer’s usual pension contribution payment obligations or processes in salary sacrifice arrangements.

TPR warned that employers will need to amend their payroll processes to calculate the contribution under the scheme rules where a salary sacrifice arrangement is in place, as the grant must be paid to furloughed workers in the form of money.

Employers that need to make changes to their payroll processes have been urged to contact their payroll provider for help and options on how to do so.

Pension contributions on salary sacrifice arrangements are separate from the employer’s auto-enrolment provisions and pension contribution obligations set out in a pension scheme’s rules or governing documentation.

The regulator continued: “When salary sacrifice is operated then usually, under the pension scheme rules, the obligation on the employer is to pay the total contribution, however it is calculated.

“In most cases, the scheme rules or governing documentation will define pensionable pay as the notional pre-sacrifice pay.

“The amount the member of staff sacrifices is paid across to the pension scheme as part of the overall employer contribution. There is no obligation under the pension scheme rules or governing documentation for the member of staff to contribute.”

Furthermore, the employee’s pay during the furlough period is expected to be treated as post-salary sacrifice pay so that no further sacrifice is made on that amount.

If an employer cannot reduce pay due to contractual arrangements, then they will continue to pay furloughed workers their full pay and calculate pension contributions and the salary sacrifice element as usual on this pay or enter the Coronavirus Job Retention Scheme.

The guidance also stated that some employers certify that they can treat their defined contribution scheme as a qualifying scheme because it meets and alternative auto-enrolment minimum contribution requirement.

“In this case, the definition of pensionable pay in the scheme rules is likely to be different from qualifying earnings. Pensionable pay may just include basic pay and not overtime or bonuses and may require contributions to be deducted from the first penny earned,” it added.

In its guidance, TPR set out a number of examples which may apply to employers in different situations.

TPR has previously issued guidance which confirmed that employers’ auto-enrolment duties “continue to apply as normal” and that the government will cover minimum contribution of furloughed employees 80 per cent of salary under the Coronavirus Job Retention Scheme.

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