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Pension Salary Sacrifice Considerations For Furloughed Employees

This article aims to provide some clarity for business owners on what they must consider if your employees have pension salary sacrifice schemes and have been furloughed.

In these unprecedented economic times, there is much for an employer to consider around salary sacrifice pensions when managing furloughed employees during the COVID-19 lockdown restrictions. This article by Busy Bees Benefits aims to provide some clarity for business owners on what they must consider.

When an employer is looking at how they will approach the treatment of employees who are being furloughed, it is important to remember that the framework provided by the Coronavirus Job Retention Scheme (CJRS) is a tool provided by HMRC in order to help employers weather the financial storm. It is not designed to provide a structure for the employer to adhere to when deciding the level of continued remuneration and other benefits during any furlough period. The point to make here is that it is all about finding a balance.

The CJRS outlines what grants the employer can apply for in order to help subsidise the cost of continuing to provide pay and benefits to employees during furlough periods. The existence of the grants available under the CJRS does not change an employer’s usual pension contribution payment obligations or the processes that are followed.

When calculating the pension contribution due for a furloughed worker who has previously agreed a salary sacrifice arrangement for their pension contributions, it is important to adhere to the contractual obligations the employer has previously entered into. This is essential, as these obligations will continue to apply, regardless of current circumstances.

The key point here is that all of the grant claimed must be paid to a furloughed worker in the form of money. This may mean that, 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.

It is important to remember that a salary sacrifice arrangement is a contractual agreement between the employee and their employer, where the employee agrees to give up some of their salary in return for a benefit, such as a pension contribution by the employer. A salary sacrifice arrangement is usually, by mutual agreement, set up by changing the terms of the worker’s contract of employment.

When a salary sacrifice arrangement is operated, there is usually the obligation on the employer to pay the total contribution, however it is calculated. In most cases the governing documentation will define ‘pensionable pay’ as the notional pre-sacrifice pay. The amount the employee sacrifices is paid across to the pension scheme as part of the overall employer contribution. There is no obligation under the governing documentation for the employee to contribute.

Key Points to Consider:

  1. We would recommend that employers review the documentation that confirms the exact salary sacrifice agreements that are in place.
  2. The employer should consider how they communicate the process with furloughed employees, should there be any changes that may impact on their contract of employment.
  3. Even with the financial support available from CJRS, this support may not be sufficient to cover the entire contractual employer contribution agreed.

To find out more information, please contact one of our experienced pension consultants on 0330 333 9100.

Our consultants have worked with many employers to increase understanding of the important factors to consider, boosting knowledge and supporting businesses with their financial obligations. We are happy to discuss our services at any time.

Please note this article has been produced to provide an outline of our understanding of the position and is not designed to provide any formal guidance or legal advice.