How do I calculate contributions?

You’ll need to calculate contributions based on the worker’s pensionable earnings. This is the amount of the worker’s pay you’ll use to work out contributions. You’ll need to calculate contributions on the gross pay before deducting tax and National Insurance, and then deduct contributions from the net pay.

Many employers use ‘qualifying earnings’ as their earnings basis to calculate contributions for their workers because it’s the standard way to calculate the legal minimum contributions. To understand how to calculate contributions using qualifying earnings, please see How do I calculate contributions if I’m using qualifying earnings?

If you’d prefer not to use qualifying earnings, there are a number of other ways you can calculate contributions and still meet the legal minimum requirements.

You’ve got the flexibility to choose which earnings basis best suits your organisation’s needs. However, your choice will affect the minimum contribution rates you’ll need to pay to meet your employer duties.

The legislation also allows you to meet your duties by certifying that your contributions meet the minimum requirements. There are three types of ‘certification’ that you can choose from, known as ‘sets’ or ‘tiers’. Please see How do I calculate my contributions using certification?

Each of the three certification tiers sets minimum contribution rates depending on the earnings basis you choose. This means instead of using the qualifying earnings band to calculate minimum contributions, you can decide if you want to include bonuses, overtime, performance-related pay and other earnings related to the worker’s employment with you. Both qualifying earnings and certification are explained in further detail in the following sections.

NEST also allows you to choose your own earnings basis and contribution rates, provided you ensure that you’re paying at least the equivalent to minimum contributions under the new legislation. If you’d prefer to do this, please see What should I do if I wish to choose my own contribution rates and pensionable pay?

You’ll need to make sure that your contributions are at least as much as the legal minimum based on qualifying earnings.