Pension contributions are based on an employee’s pensionable earnings. How these are defined depends on your pension scheme.
There are three common ways pensionable earnings can be calculated:
Qualifying earnings
Basic earnings
Total (or gross) earnings
Each scheme is set up differently, and even schemes with the same provider may not follow the same rules. If you’re unsure which method applies to you, please check directly with your pension provider.
Qualifying earnings
Qualifying earnings are the minimum pay elements that must be included in pension calculations. They cover:
Basic pay or wages
Commission
Bonuses
Overtime
Statutory sick pay (SSP)
Statutory parental pay (maternity, paternity, adoption, shared parental leave, etc.)
Only the portion of earnings between the lower and upper thresholds is used.
For the 2025/2026 tax year, the thresholds are:
Level | Annual threshold | Monthly threshold |
Lower | £6,240 | £520 |
Upper | £50,270 | £4,189 |
If contributions appear lower than expected, your scheme may be applying these thresholds.
Basic earnings
Basic earnings usually include an employee’s base salary plus certain allowances. Unlike qualifying earnings, there are no thresholds to apply.
In PayFit, the following items are included if a scheme is set up on basic earnings:
Base pay
Furlough pay
Holiday pay
Zero-hour pay
Occupational leave pay (if selected)
Leave rebalancing pay
Pay for selling annual leave
Minus deductions for buying annual leave
Backdated pay for late starters
KIT (Keep in Touch) payments
Additional payments (if selected)
Total or gross earnings
Total (or gross) earnings include all pay items – such as base pay, overtime, commission, and salary sacrifice deductions.
There are usually no thresholds to apply when using this method.
Notice pay and termination payments
Notice pay and termination payments are not usually pensionable, as they are generally made after the employee has left employment (and the pension scheme).
Some schemes may treat these payments as pensionable. Always confirm with your pension provider.
In PayFit, notice pay and termination payments are excluded by default.
If your scheme does include them, you can override the pensionable earnings or reach out via ticket for support.
Example calculations
An employee has a base salary of £1,000 and a £500 bonus.
The contribution rates are 5% employee and 3% employer.
Qualifying earnings
Total pay = £1,500
Pensionable pay = £1,500 – £520 (lower threshold) = £980
Employee: £980 × 5% = £49
Employer: £980 × 3% = £29.40
Basic earnings
Only base pay is included (£1,000)
Pensionable pay = £1,000
Employee: £1,000 × 5% = £50
Employer: £1,000 × 3% = £30
Total or gross earnings
All pay included (£1,500)
Pensionable pay = £1,500
Employee: £1,500 × 5% = £75
Employer: £1,500 × 3% = £45
FAQ
Can employer and employee contributions be based on different earnings?
No. Both employer and employee contributions must normally be calculated on the same type of earnings (qualifying, basic, or total). Pension providers do not usually allow different definitions for each party.
For example, if your scheme is set up on qualifying earnings, both employer and employee contributions must be based on qualifying earnings.
The only exception is if your pension provider has explicitly confirmed in writing that contributions can differ.
If an employee wishes to pay more, they should do so via Additional Voluntary Contributions (AVCs) rather than changing the core pensionable earnings.