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.
When a salary sacrifice agreement is put into place, employment contracts are amended so that employees take a contractual reduction in salary. The employer takes on a contractual obligation to pay the higher than standard employer pension contributions, instead. The level of the employer contributions and any rules for how they are calculated form part of the contractual agreement. As are any rules for varying the agreement. When calculating the pension contribution due for a furloughed worker who has agreed a salary sacrifice arrangement for pension contributions, any contractual obligations you have entered into and the obligation in the pension scheme rules continue to apply as normal.
However, as all of the grant claimed must be paid to a furloughed worker in the form of money, where a salary sacrifice arrangement is in place for pensions, an employer will need to amend their payroll processes to calculate the pension contribution to be paid to the pension scheme under the pension scheme rules. This results in a ‘grossing-up’ of the gross furlough pay to represent the value of the salary sacrifice arrangement.
The operation of a salary sacrifice arrangement for pension contributions is separate from the automatic enrolment provisions and pension contribution obligations set out in a pension scheme’s rules or governing documentation.
When salary sacrifice is operated 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.