Assess a worker for auto-enrolment
Eligible, non-eligible or entitled: the 2026-27 thresholds and minimum contributions.
For the 2026-27 tax year, auto-enrolment's legal floor applies to gross earnings between £6,240 and £50,270, and the minimum total contribution on that band is 8% [9] [3]. Many schemes ignore that band entirely and calculate on a different figure, "pensionable earnings", which government guidance defines as "the gross earnings on which contributions to the scheme are payable" [1].
That second figure is what payroll teams call pensionable pay. It is set by the scheme rules, not by statute, and it can be narrower or wider than the qualifying earnings band. A scheme may include overtime or exclude it, start from the first pound of pay or from £6,240, and treat bonuses, allowances and statutory payments in its own way [10] [11].
The distinction matters because the payroll calculates both. The qualifying earnings figure decides whether a worker must be enrolled and what the law requires; the pensionable pay figure decides what is actually collected and sent to the provider. When the two are confused, contributions are wrong on every payslip, and the error compounds until the next scheme audit or re-enrolment.
This guide explains what pensionable pay is, how it relates to qualifying earnings, how the three certification sets work, how public service schemes define it, and how the choice of tax method and salary sacrifice changes take-home pay. Every tax and National Insurance figure in the worked examples was computed by a payroll engine implementing HMRC's 2026-27 routines.
Key takeaways
- Qualifying earnings are a statutory band (£6,240 to £50,270 a year for the 2026-27 tax year); pensionable pay is whatever the scheme rules say contributions are calculated on [2] [1].
- An employer using pensionable pay must certify that the scheme meets one of three sets, at 9%, 8% or 7% total contributions depending on what the definition includes [19] [1].
- Statutory sick, maternity, paternity, adoption, shared parental, bereavement and neonatal care pay all count as earnings for auto-enrolment [2].
- Net pay arrangements reduce the pay on which income tax is charged; relief at source collects the contribution from net pay and the provider claims the basic rate [4] [15].
- Salary sacrifice lowers the pay subject to both income tax and National Insurance, but from 6 April 2029 only the first £2,000 a year of sacrificed pay will stay free of National Insurance [7].
What pensionable pay means
Pensionable pay is the slice of an employee's pay that a pension scheme uses to work out contributions. In money purchase schemes it is defined in the scheme rules or the employer's contract; in public service schemes it is written into regulations [1] [10]. The term is used interchangeably with "pensionable earnings" in most guidance.
Pensionable pay and qualifying earnings are different figures
Qualifying earnings come from section 13 of the Pensions Act 2008. They are the part of a worker's gross earnings above £6,240 and not above £50,270 in a 12-month period, pro-rated for shorter pay reference periods [2]. The government freezes or changes those figures each year after a formal review, and the 2026-27 review kept all three unchanged [8].
Pensionable pay has no statutory definition for auto-enrolment purposes. GOV.UK notes that "most schemes" base contributions on total earnings between £6,240 and £50,270, which implies that others do not [3]. LITRG's guide to contributions describes pensionable pay as an alternative method that a scheme may choose instead of qualifying earnings [16].
The table summarises how the two concepts differ in practice.
| Feature | Qualifying earnings | Pensionable pay |
|---|---|---|
| Where defined | Pensions Act 2008, section 13 | Scheme rules or regulations |
| Starting point | Above £6,240 a year | Often the first pound of pay |
| Upper end | £50,270 a year | Often no ceiling |
| Overtime and bonuses | Always included | Included or excluded by the rules |
| Compliance check | Built in | Employer certification required |
Sources: Pensions Act 2008, section 13 [2] and DWP certification guidance [1].
What the law counts as earnings
Whichever basis a scheme uses, the statutory definition of earnings sets the reference point. Section 13(3) lists "salary, wages, commission, bonuses and overtime", together with statutory sick pay, statutory maternity, paternity, adoption, shared parental, parental bereavement and neonatal care pay [2]. GOV.UK's employer guide repeats the core list, naming salary, bonuses, commission, overtime, SSP and statutory family pay [17].
That inclusion has a direct payroll consequence. An employee on statutory maternity pay at £194.32 a week remains a jobholder with earnings, and a scheme on a qualifying earnings basis keeps collecting on that pay [2] [26]. Statutory sick pay is treated the same way, so a long absence does not stop contributions on its own [25].
How auto-enrolment frames pensionable pay
Pensionable pay only becomes a compliance question because auto-enrolment sets a floor. Employers must enrol staff aged between 22 and State Pension age who normally work in the UK and earn at least £10,000 a year, and must write to newly eligible staff within 6 weeks [20]. The contributions they then pay must at least match the statutory amounts, whatever basis the scheme uses [3].
The 2026-27 earnings figures by pay period
The Pensions Regulator publishes the auto-enrolment figures for each pay frequency, and payroll applies the one that matches the pay reference period. The table shows the 2026-27 values.
| Pay period | Lower level of qualifying earnings | Earnings trigger | Upper level |
|---|---|---|---|
| Weekly | £120 | £192 | £967 |
| Four-weekly | £480 | £768 | £3,867 |
| Monthly | £520 | £833 | £4,189 |
| Annual | £6,240 | £10,000 | £50,270 |
Sources: The Pensions Regulator, earnings thresholds [9] and the DWP review for 2026-27 [8].
The trigger decides who is enrolled automatically; the lower and upper levels define the band used for the statutory contribution check. A worker who chooses to join with earnings above £520 a month, £120 a week or £480 over four weeks also obliges the employer to contribute [3] [9].
Minimum contributions on qualifying earnings
On a qualifying earnings basis, the employer pays at least 3% and the total must reach at least 8%, so the employee's share is 5% including tax relief [3] [16]. GOV.UK states the employer's duty plainly: "You must pay at least 3% of your employee's 'qualifying earnings'" [17].
| Contributor | Share of qualifying earnings |
|---|---|
| Employer | 3% |
| Employee (including tax relief) | 5% |
| Total | 8% |
Source: GOV.UK, what employers and employees pay [3] and The Pensions Regulator [9].
As a worked example, an employee paid a salary of £2,500 a month has qualifying earnings of £1,980 for that month (£2,500 less the £520 monthly lower level), so the employee pays in £99.00 and the employer £59.40 [9]. The auto-enrolment guide for employers covers the enrolment steps that sit around this calculation.
Certification: using pensionable pay legally
A scheme that calculates on pensionable pay cannot simply compare its percentages with 8%. Its pay definition may be narrower than qualifying earnings, so the employer must certify that the scheme still delivers enough. The DWP guidance sets out three alternative tests, known as sets (Nest calls them tiers) [1] [19].
The three certification sets
Each set trades a wider pay definition for a lower percentage. The more of a worker's pay the definition captures, the lower the total contribution needed.
| Set | What pensionable pay must include | Total contribution | Employer share at least |
|---|---|---|---|
| Set 1 | At least basic pay, from the first pound | 9% | 4% |
| Set 2 | Pensionable earnings across the workforce at least 85% of total earnings | 8% | 3% |
| Set 3 | All earnings | 7% | 3% |
Sources: DWP guidance on certifying money purchase schemes [1] and Nest's certification help page [19].
Basic pay, for Set 1, excludes bonuses, overtime, commission and shift allowances [1]. Nest describes Set 3 in one line: "Set 3 includes all earnings in pensionable earnings" [19].
A worked comparison of the bases
Take an employee paid a basic salary of £2,500 a month who also earns £200 of overtime in one month. The contributions the employee pays in differ by basis, before any tax effect.
| Basis | Pay used for the month | Employee share | Employee contribution |
|---|---|---|---|
| Qualifying earnings | £2,180 (£2,700 less £520) | 5% | £109.00 |
| Set 1, basic pay only | £2,500 | 5% | £125.00 |
| Set 3, all earnings | £2,700 | 4% | £108.00 |
Sources: qualifying earnings band [9] and set definitions [19].
The Set 3 row assumes a 4% employee and 3% employer split, which reaches the 7% total. In the Set 1 row the employer must add at least 4%, or £100.00, so the total reaches 9% [1]. The figures show why the choice of basis is a cost decision as well as an administrative one.
The 85% test in Set 2
Set 2 is the most flexible and the easiest to get wrong. The test is applied to the workforce in aggregate: total pensionable earnings of all relevant workers must be at least 85% of their total earnings [19]. Nest's own example gives a gross pay of £500 against which 85% is £425 [19].
An employer whose staff earn a growing share of pay as overtime or commission can drift below 85% without changing a single rule. The DWP guidance therefore expects the employer to check the test over the certification period and to top up any shortfall [1] [16].
How public service schemes define pensionable pay
Defined benefit public service schemes write pensionable pay into regulations, and those definitions are often the reason payroll teams meet the term at all. Two examples show how far they diverge.
The Local Government Pension Scheme
Regulation 20 of the LGPS Regulations 2013 defines pensionable pay as "all the salary, wages, fees and other payments paid to the employee", plus any contractual benefit specified "as being a pensionable emolument" [10]. Overtime is therefore pensionable in the LGPS unless an exclusion applies.
The exclusions are specific. They cover travel and subsistence allowances, payment for loss of holidays, payment in lieu of notice, inducement payments, the value of a company car and certain returning officer fees [10]. A payroll that treats every taxable payment as pensionable will overcollect on a leaver's pay in lieu of notice, which is taxable under PAYE but not pensionable [22].
The NHS Pension Scheme in Scotland
The Scottish Public Pensions Agency takes a narrower view under regulation 27 of the NHS Pension Scheme (Scotland) Regulations 2015. Pensionable earnings include "any amount equal to any part of salary given up under an approved salary sacrifice arrangement", together with other regular payments [11].
Bonuses, payments to cover expenses, overtime and non-consolidated awards are excluded [11]. The comparison with the LGPS is stark, as the table shows.
| Pay element | LGPS (England and Wales) | NHS Scotland |
|---|---|---|
| Basic salary | Pensionable | Pensionable |
| Overtime | Pensionable | Not pensionable |
| Expenses and subsistence | Not pensionable | Not pensionable |
| Salary given up by sacrifice | Not stated in regulation 20 | Treated as pensionable |
Sources: LGPS Regulations 2013, regulation 20 [10] and SPPA guidance [11].
Bureaux that run payroll for councils, academies and health bodies hold several definitions at once. A multi-client payroll dashboard that stores the pensionable flag per pay element and per scheme avoids the shared-spreadsheet approach that produces most of these errors.
Tax relief and the take-home effect
Pensionable pay decides the size of the contribution. The tax relief method decides how that contribution interacts with income tax and National Insurance on the payslip. HMRC recognises three methods: relief at source, net pay, and gross contributions with a claim, and "a member cannot choose" which one applies [5] [24].
Net pay arrangements
Under a net pay arrangement the contribution comes out of gross pay before income tax is worked out, so the employee receives relief at the marginal rate automatically [4]. National Insurance is still charged on the full gross pay, because the contribution does not reduce NI-able earnings [21]. The scheme must apply net pay to all the employer's employee members [4].
The method left low earners worse off, because an employee with pay below the personal allowance pays no tax and so gains nothing [13]. From the 2024-25 tax year, HMRC pays a top-up "equal to income tax relief not already received" directly to the individual after the year ends, and estimates that about 1.2 million people are affected [12].
Relief at source
Under relief at source the employer collects the contribution from net pay and the provider claims basic-rate relief from HMRC [15]. HMRC's manual gives the standard example: a £100 gross contribution costs the member £80 at 20% [15]. Higher and additional-rate taxpayers claim the rest through Self Assessment [13].
In the worked example above, the employee whose share is £99.00 hands over £79.20 and the provider adds £19.80 [14]. This method also lets a member with little or no earnings pay in up to £3,600 gross a year [5].
Salary sacrifice
Under salary sacrifice the employee gives up part of their contractual pay and the employer pays the same amount into the pension as an employer contribution. Employer pension contributions are not a taxable benefit, so the sacrificed pay escapes income tax and both employee and employer National Insurance [6]. HMRC adds that the sacrifice cannot reduce cash pay below the National Minimum Wage, which is £12.71 an hour for workers aged 21 and over [6] [23].
Salary sacrifice also changes pensionable pay itself. HMRC notes that employers often use a "notional level of pay" so that participants are not disadvantaged, and the NHS Scotland rules count sacrificed salary as pensionable [6] [11]. The guide to salary sacrifice pensions sets out the contractual steps in more detail.
Worked example: the three methods side by side
The table applies each method to an employee paid £2,500 a month under code 1257L with National Insurance category A, contributing £99.00 a month on qualifying earnings. Income tax and National Insurance were computed by the engine.
| Method | Pay subject to income tax | Income tax | Employee NI | Employer NI |
|---|---|---|---|---|
| No pension | £2,500 | £290.20 | £116.16 | £312.45 |
| Relief at source | £2,500 | £290.20 | £116.16 | £312.45 |
| Net pay arrangement | £2,401 | £270.40 | £116.16 | £312.45 |
| Salary sacrifice | £2,401 | £270.40 | £108.24 | £297.60 |
Sources: income tax bands [22], National Insurance rates [21] and the net pay method [4].
Net pay cuts the income tax by £19.80, exactly the basic-rate relief that relief at source delivers through the provider instead [4] [15]. Salary sacrifice adds a further saving of £7.92 in employee National Insurance and £14.85 in employer National Insurance [6].
The same logic scales with the basis. On the Set 1 basis, a contribution taken from the full £2,500 under net pay leaves £2,375 subject to income tax, and the tax falls from £290.20 to £265.20, a reduction of £25.00 [4] [1].
The salary sacrifice change from 6 April 2029
The government has confirmed that, from 6 April 2029, earnings given up under salary sacrifice for pensions above £2,000 in a tax year will attract Class 1 primary and secondary National Insurance [7]. Income tax treatment does not change, and ordinary employer contributions stay free of National Insurance [18].
Who the change reaches
The policy paper estimates that around 7.7 million employees use salary sacrifice for pensions, 3.3 million of whom sacrifice more than £2,000, across about 290,000 employers [7]. Employers will report the total sacrificed through existing payroll software, with further guidance promised before the start date [18].
What it means for pensionable pay
The change does not alter the definition of pensionable pay in any scheme. It does alter the arithmetic of the employee's decision, because the National Insurance saving shrinks once the annual amount passes £2,000 [7]. Payroll will need to track sacrificed amounts cumulatively across the tax year, alongside the notional pensionable pay that many schemes already hold [6].
Getting pensionable pay right in payroll
Most pensionable pay errors come from configuration rather than from law. The checks below cover the points where a payroll most often diverges from the scheme rules.
Map every pay element once
Each pay element (basic pay, overtime, shift premium, bonus, commission, statutory payments, pay in lieu of notice) needs a flag for each scheme it can feed. The statutory list in section 13 is the starting point for qualifying earnings, and the scheme rules settle pensionable pay [2] [10]. Mapping once, at element level, means the same flag applies to every employee in the scheme.
For an employer that runs a single defined contribution scheme, the SME payroll platform holds this mapping alongside the auto-enrolment assessment, so the payslip shows both the pensionable pay used and the contributions collected [3] [17].
Keep assessment and calculation separate
Assessment always runs on the statutory earnings figure, even when contributions run on pensionable pay. A Set 1 scheme that ignores overtime for contributions must still count overtime when deciding whether a worker crosses the £10,000 trigger [2] [20]. Platforms that embed payroll through the HMRC-recognised payroll API receive the two figures as separate fields, as described in the API documentation.
Pay contributions on time
Whatever the basis, contributions deducted from pay must reach the scheme "by the 22nd day (19th if you pay by cheque) of the next month" [17]. A late correction to pensionable pay therefore usually means a backdated contribution and an adjusted remittance, not just a payslip change [3]. The explainer on pension contributions and tax relief covers how those corrections interact with relief.
Check a worker's auto-enrolment position
Before deciding which basis a scheme should use, an employer can check where a given pay figure sits against the 2026-27 trigger and qualifying earnings band with the Moonworkers auto-enrolment calculator, which returns the worker category and the statutory contributions for any pay period.
Age decides the category: 22 to State Pension age for automatic enrolment, 16 to 74 for opt-in and joining rights. We work out their State Pension age from the statutory timetable.
Assessment result
No assessment yet
Two quick steps: the worker's date of birth, then their pay. The category and minimum contributions appear here.
Auto-enrolment on autopilot
Moonworkers assesses every worker on every payrun, handles enrolment, opt-outs and re-enrolment, and pushes contributions to NEST, Smart Pension and The People's Pension automatically.
Conclusion
Pensionable pay is where scheme design meets payroll arithmetic. The law fixes a floor through qualifying earnings and the three certification sets; the scheme rules then decide which pay elements count, and the tax method decides how relief appears on the payslip. Each of those layers can be correct on its own and still produce the wrong contribution if the payroll applies them to the wrong pay elements.
The direction of travel points to more tracking, not less. A cumulative salary sacrifice figure from 6 April 2029, a frozen earnings band subject to annual review, and the low earners' top-up all add data that payroll must hold accurately for every employee. Systems that record pensionable status at the level of each pay element, scheme by scheme, are the ones that will absorb those changes without a re-audit.
Frequently asked questions
Is overtime pensionable pay?
It depends on the scheme. Overtime always counts towards qualifying earnings under section 13 of the Pensions Act 2008 [2]. The LGPS treats it as pensionable, while the NHS Pension Scheme in Scotland excludes it [10] [11]. A Set 1 scheme can exclude it, because Set 1 only requires basic pay [1].
What is the difference between pensionable pay and qualifying earnings?
Qualifying earnings are a statutory band, £6,240 to £50,270 a year for the 2026-27 tax year, used to test compliance [9]. Pensionable pay is the pay figure the scheme rules use to calculate contributions, which may start from the first pound and may include or exclude particular pay elements [1].
Does statutory maternity pay count as pensionable pay?
Statutory maternity pay counts as earnings for auto-enrolment, so contributions on a qualifying earnings basis continue during paid maternity leave [2]. Whether it is pensionable pay in a particular scheme depends on the scheme rules, and some schemes base contributions on the pay the employee would have received [17].
Does salary sacrifice reduce pensionable pay?
Not necessarily. HMRC notes that employers often use a notional level of pay so that pension benefits are not reduced, and the NHS Pension Scheme in Scotland counts sacrificed salary as pensionable [6] [11]. The scheme rules and the sacrifice agreement settle which pay figure applies.