Find out how to calculate pensionable earnings and what they mean for your workplace pension contributions.
Pensionable earnings are the part of an employee’s pay used to calculate pension contributions. Employers can choose how to define these earnings – usually as basic pay, qualifying earnings, or total earnings.
This guide explains what pensionable earnings mean, how they’re calculated, and how the different methods affect contributions.
If you’re ready to compare qualifying and total earnings in more detail, check out our full explainer: Qualifying vs Total Earnings for Pensions Explained
When you set up a workplace pension scheme, your contributions are based on your employees’ pensionable earnings – in other words, the portion of their salary you’ll use to work out how much both you and your employees pay in.
There are three recognised ways to calculate pensionable earnings under UK auto-enrolment rules.
Each approach meets the legal minimum requirements for auto-enrolment but can lead to different contribution amounts for you and your employees.
Employers and employees must contribute at least 8% combined into an auto-enrolment pension. This usually breaks down as:
Your pensionable earnings definition determines what portion of salary those percentages apply to.
The basic pay method calculates pension contributions based on the employee’s base salary only. It excludes additional earnings like overtime, bonuses, or commission.
Example: If an employee earns 38,000ドル basic salary plus a 2,000ドル bonus, only 38,000ドル is pensionable under this method.
This approach keeps costs predictable and calculations simple, but employees earning significant bonuses or overtime may save less over time.
The qualifying earnings method only counts income within a specific band of earnings each tax year. For 2024/25, that band is between 6,240ドル and 50,270ドル.
This includes:
Example: If an employee earns 40,000ドル (including bonuses), only the portion between 6,240ドル and 40,000ドル — a total of 33,760ドル — is pensionable.
Qualifying earnings are common for smaller businesses meeting auto-enrolment minimums, but they can be more complex to calculate and may limit how much employees save.
The total earnings approach includes all income an employee earns — basic pay plus bonuses, overtime, and other payments.
Example:
If an employee earns 38,000ドル plus a 2,000ドル bonus, the full 40,000ドル is pensionable.
This method is simple, transparent, and ensures every pound earned counts toward employees’ long-term savings.
If you’d like to explore the pros and cons of each method, read our full comparison: Qualifying vs Total Earnings for Pensions Explained
Here’s how the three approaches compare:
For schemes using a net pay approach, contributions are taken before tax — meaning employees pay income tax and National Insurance on a smaller amount.
Employers can also consider a salary sacrifice pension scheme, which can reduce National Insurance contributions for both the business and employees while maintaining the same take-home pay and pension pot.
Whether you choose basic pay, qualifying earnings or total earnings, you should ensure that your method for calculation lines up with your payroll software.
Penfold makes it simple to set up or switch and manage your workplace pension, whichever calculation method you use.
Request more information today to discover how we can help your business offer a modern, flexible pension scheme.
Thinking about moving beyond qualifying earnings? Find out why growing businesses are upgrading to total earnings.
Frankie Dewar
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