COVID-19 – Salary Sacrifice guidance for use in calculating pension contributions under the Coronavirus Job Retention Scheme
The Coronavirus Job Retention Scheme (CJRS) system went live on 20 April 2020.
With the system now live, full details of the scheme can be found here.
It is worth noting that there have been some recent amendments, these being:
- The scheme has been extended to run until at least 30 June 2020.
- Eligibility for the scheme has changed so that employees on a payroll on or before 19 March 2020 can have claims made through the CJRS.
A useful step by step guide for employers on how to make a claim is available here.
How the CJRS will work with salary sacrifice
The Treasury has confirmed that in all instances where employers operate salary sacrifice in the pay period being used as reference pay for the CJRS, only 80% of post-sacrifice pay can be claimed.
If an employee asks to stop pension saving or it was agreed to stop the salary sacrifice arrangement it would still not be permissible to claim more than 80% of the post-sacrifice pay received in the reference pay period.
Pension contributions based on the salary sacrifice contract with the employee will continue to be payable where salary sacrifice is in place and the employee remains in the pension scheme. The statutory minimum that must be paid will be 8% of qualifying earnings based on the wage paid to the employee but an employer will only be able to claim a maximum of 3% of qualifying earnings based on 80% of post sacrifice paid from the CJRS.
A deduction cannot be made from the amount paid as wages under the CJRS to cover additional employer contributions due under a salary sacrifice arrangement.
The Treasury has also confirmed that they are aware this means employers will need to pick up some employment costs due to HMRC having to limit claims to taxable pay only.
Furloughed worker ceasing pension scheme membership
If a furloughed worker chooses to cease membership of the pension scheme then sacrificed contributions would not be liable for pension savings and the employer would also not be liable for pension contributions (although if this was 3% of qualifying earnings then the cost would be covered by CJRS in any event).
Ceasing salary sacrifice agreements
HMRC have confirmed that “COVID-19 counts as a life event that could warrant changes to salary sacrifice arrangements, if the relevant employment contract is updated accordingly.”
This would only seem to be of benefit to employees who are not furloughed but perhaps suffering hardship. They could choose to stop pension contributions or other sacrifice benefits and receive an increased salary instead.
For furloughed workers the amount paid from CJRS in respect of wages will not change if the salary sacrifice agreement ends.
Should an employee agree to end their salary sacrifice agreement, employee pension contributions will become payable by deduction from the employee’s pay.
The amount payable by the employee will depend on certain conditions but it will need to be a minimum of 5% of qualifying earnings if the employer pays 3% of qualifying earnings.
Find out more
This is clearly a complex area and we recommend that employers seek advice before making changes to contracts of employment, pay and benefits.
If you would like any more information on these matters, please contact your Ascot Lloyd consultant/contact directly.