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How do I calculate contributions using qualifying earnings?

Qualifying earnings is a band of earnings you can use to calculate contributions and is used by most employers. The figures are reviewed annually by the government, for the 2022/23 tax year it is £6,240-£50,270 a year. You’ll contribute a percentage of your worker’s gross annual earnings that fall between these figures. The first £6,240 isn’t included, so qualifying earnings can’t be more than £44,030 (£50,270 minus £6,240). For example, if a worker earns £20,000 their qualifying earnings would be £13,760.

You have to pay contributions to Nest every time you pay your workers, so you’ll need to work out qualifying earnings for each pay period based on the workers earnings in that pay period.

The table below shows the lower and upper levels of qualifying earnings threshold for some commonly used pay periods. 

Pay periods Lower level of qualifying earnings Upper level of qualifying earnings
Weekly and tax weekly £120 £967
Fortnightly £240 £1,934
Four weekly £480 £3,867
Monthly and tax monthly £520 £4,189

 

When you’re calculating a worker’s qualifying earnings for a pay period, you need to include all of the following within your calculations (this list is not exhaustive):

  • their salary or wages
  • overtime
  • bonuses
  • commission
  • statutory sick pay
  • statutory pay someone receives during paternity, maternity or any other kind of family leave, adoption pay
  • holiday pay

Please check The Pensions Regulator (TPR) website for more information.

You’ll need to subtract the lower and upper thresholds from the total pay to get the pensionable earnings for the worker. For example:

If a worker is paid weekly and earned £200, you’ll need to subtract the threshold of £120 from the total pay (£200 minus £120) to get the pensionable pay of £80. You’ll then need to calculate the contributions based on that amount.

If a worker is paid weekly and earned £2000, you’ll only consider the upper-level threshold of £967 and subtract the lower level threshold of £120 (£967 minus £120) to get the pensionable pay of £847. You’ll then need to calculate the contributions based on that amount. 

Once you have calculated the worker’s pensionable pay, you can input that to the online contribution schedule and the Nest system will calculate the employer and member contributions less tax relief (if applicable).

If you’re using qualifying earnings to calculate contributions for a worker, the minimum contribution rate is 8% of which the employer must pay at least 3%.

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