There are three ways to calculate workplace pension contributions. Which way you choose will depend on whether your nanny gets regular bonuses or does overtime, or whether you’re trying to keep costs down.
The three options are:
- Basic Pay bases contributions on pay before any additions such as bonuses or overtime.
- Total earnings contributions are worked out on full earnings before tax.
- Qualifying earnings or banded earnings includes salary as well as things that tend to vary each much such as commission, bonuses, sick or maternity pay.
If you choose qualifying or banded earnings contributions will be calculated on salary that falls between £5,824 and £43,000 a year. The Pensions Regulator automatic enrolment earnings threshold table shows the threshold for different pay frequencies.
Contributions are a percentage of qualifying earnings before tax and National Insurance are deducted. To work out contributions you’ll need to use Automatic enrolment earnings threshold. So for a nanny who earns £1,000 monthly you’ll need to deduct the monthly threshold of £486. This will give you pensionable pay of £514.
See The Pensions Regulator Detailed guidance for employers Assessing the workforce, p 33 for more examples of how this works.