Company pension contributions: adviser essentials
We've developed this concise guide to company pension contributions, so that advisers can support employers with compliance, cost control and scheme design.
Key points
- Employers must contribute at least 3% of qualifying earnings to meet auto‑enrolment duties.
- Contribution calculations can be structured in different ways, allowing advisers to tailor schemes to employer needs.
- Employers must issue statutory communications to eligible staff — timing and clarity are critical for compliance.
What pension contributions mean in practice
A pension contribution is the amount paid into an employee’s pension, usually expressed as a percentage of earnings. Your clients need to know that, as employers, they are legally required to make monthly contributions for eligible staff at or above auto‑enrolment minimums. Failure to comply can result in fines or penalties.
These duties apply to employers of all sizes — including those with only one employee — making early advice particularly valuable for smaller businesses.
Minimum pension contribution requirements
The minimum contributions levels that your clients need to be aware of:
| Total contribution | Employer’s contribution |
| 8% of employee’s gross salary | 3% of employee’s gross salary |
Employers can exceed minimum contribution levels, but not fall below them. The way that contributions are calculated depends on the structure of your client's scheme and its earnings definitions.
While minimum contribution rates are set by government, employers retain flexibility in how contributions are calculated — an area where adviser input can make a meaningful difference.
For example, employers may choose to pay a fixed amount rather than a percentage, provided it meets minimum equivalence. There is also flexibility around how earnings are defined, which we explore below.
Which earnings contributions are based on
When schemes are set up, one of the key decisions is what counts as earnings for contribution purposes — whether that’s basic pay only, or includes overtime, bonuses and other elements.
Employers and scheme providers will need to agree how earnings are defined at the time their scheme is set up.
This is an overview of the major considerations used to calculate contributions:
Contributions based on qualifying earnings
Qualifying earnings are the standard earnings definition used for minimum auto‑enrolment contributions and typically include:
- Basic pay
- Overtime
- Bonuses
- Commission
- Statutory sick pay
- Statutory maternity, paternity or adoption pay
Qualifying earnings are subject to lower and upper thresholds. For the 2025/26 tax year, they run from £6,240 to £50,270.
Contributions can be calculated on this basis or using one of three alternative ‘sets’, depending on scheme design and employer objectives.
Pensionable pay (set one)
- If you calculate pension contributions based on basic pay, you’ll only use an employee’s contractual and statutory payments.
- You can exclude additional payments like overtime, commission and bonuses if you calculate pension contributions on this basis.
Pensionable pay (set two)
- Pensionable pay means any income eligible for pension deductions.
- It can include any other payment or benefits outlined as pensionable in an employee’s contract of employment.
- The portion of your employees’ pay you base contributions on must be at least 85% of their total pay.
- If you pay overtime, commission or bonuses – which change year on year – you would normally need to look at past data to see whether you are likely to meet this minimum before certifying on this basis. If you’re taking on your first employees, you’ll need to assess how you intend to pay them and see whether their basic pay is likely to be at least 85% of their total pay package.
Total pay (set one)
- Total pay is 100% of an employee’s earnings.
- It includes any commission, bonuses, overtime and so on.
How advisers can help clients select the right contribution calculation
Contribution calculations can be complex. To bring clarity, we’ve included worked examples showing how different approaches operate in practice.
There are multiple factors to weigh up when selecting an approach. Your role as an adviser is critical in evaluating the different factors involved in choosing the right approach. You'll need to weigh up cost, compliance and employee outcomes.
Worked examples of contribution types
We use Ben, an example employee, to illustrate the differences.
Ben's basic pay
£35,000 a year
His sales bonus
£1,000 a year
His overtime
£5,000 a year
Total pay
£41,000 a year
How the different contributions work
| Types | Amount | How is it worked out | Minimum employer contribution | Minimum total contribution |
| Qualifying earnings | £34,760 | £6,240 deducted before applying contribution percentages | £1,042.80 a year (3% of £34,760) | £2,780.80 a year (8% of £34,760) |
| Basic pay | £35,000 | The percentage that must go into Ben’s pension from his basic salary, which only includes contractual and statutory payments. | £1,400 a year (4% of £35,000) | £3,150 a year (9% of £35,000) |
| Pensionable pay (set two) | £36,000 | For set two contributions, the percentage that must be put into Ben’s pension from his pensionable pay. To use set two contributions levels, Ben’s pensionable pay must be more than 85% of the total amount he earns. Pensionable pay can include any other payment or benefit outlines as being pensionable in an employee’s contract of employment. | £1,080 a year (3% of £36,000) | £2,880 a year (8% of £36,000) |
| Total pay (set three) | £41,000 | The percentage that must be put into Ben’s pension from 100% of Ben’s salary, including any commission, overtime and bonuses. | £1,230 a year (3% of £41,000) | £2,870 a year (7% of £41,000) |
Processing contributions and payment deadlines
Contributions must be paid by statutory monthly deadlines, which vary depending on payment method.
Contributions paid by cheque must be received by the 19th of the following month. Other payment methods extend the deadline to the 22nd — You'll need to make sure that your client knows about this.
Many providers offer online administration and payroll integration, helping employers calculate and process contributions efficiently and with reduced risk.
How workplace pension contributions are invested
Workplace pensions typically provide a range of investment options designed to meet different life stages, risk appetites and retirement horizons.
In reality, many members remain in default funds. These are professionally designed to meet the needs of the majority, reinforcing the importance of robust default governance.
Your role in helping employers plan for contribution costs
Advisers play a key role in helping employers assess affordability and plan sustainably against forecasts and cash flow. The total cost of a workplace pension extends beyond contributions alone.
Employers need to think about expenses like pension provider’s charges, payroll costs, and the cost of assessing employees for eligibility and communicating with them about their pension scheme.
Employer communication duties
As part of auto‑enrolment duties, employers must issue individual statutory communications explaining scheme enrolment and impact.
Timing matters. Communication requirements can affect opt‑out windows and must align with provider processes.
Many providers offer tools and templates to support statutory communications — reducing administrative burden and compliance risk for employers.
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