Employer contributions

The Coronavirus Job Retention Scheme was set up by the Government in response to the COVID-19 virus. The scheme intends to support businesses and their employees through the outbreak by covering up to 80% of the costs of employment up to an overall cap at the outset of £2,805 per employee per month. Up to 31st July 2020, this not only included salary, but also the employer’s National Insurance contributions and the minimum employer pension contribution of 3% of qualifying earnings required under Automatic Enrolment (AE). Flexible furlough – allowing furloughed employees to return to work part-time – is possible from 1st July 2020. The level of Government financial support tapered off between 1st August 2020 and 31st October 2020. This scheme was originally planned to end at this point. However, the Government announced on 5th November that the Coronavirus Job Retention Scheme has been extended from 1st November 2020 to 31st March 2021. For more details, click here

We recognise the impact of the Coronavirus outbreak may be placing considerable strain on you and your clients. We want to reassure you that we’re working with the Government and Regulators to determine whether any change to current industry practice is required. To continue to support you, we wanted to share our understanding of the current situation at present and what it means. 

We’ve summarised the current position on employer pension contributions. 

  • The scheme applies where a business has ‘furloughed workers’. Originally, that required the employees to be completely inactive, but from 1st July 2020 ‘flexible furlough’ allows previously furloughed workers to return to work part-time. The Coronavirus Job Retention Scheme is intended to support a business and their employees by covering up to 80% of the costs of employment up to an overall pay cap of £2,500 and a total of up to £2,805 per employee per month (at the outset). Up to 31st July 2020, this financial support included employer National Insurance (NI) contributions and the minimum employer pension contribution of 3% of qualifying earnings required under AE.
  • From 1st November 2020, the financial support under the Coronavirus Job Retention Scheme returns to the 'August' basis. Flexible furlough continues. The scheme covers eligible employees for up to 80% of their salary for hours not worked, capped at £2,500. The employer covers the cost of the related employer NI and pension contributions. However, a January 2021 review will consider if an employer contribution towards pay for hours not worked should be reintroduced.
  • Where a business has made other arrangements with employees such as reducing pay (for example to 50% of normal salary), we would expect AE contributions to continue and be based on the reduced salary applying to each pay reference period. 
  • Where a business is carrying on its operations as normal, we would not expect any changes in relation to AE contributions. 
  • Where an employer falls into arrears, the current rules require missed contributions to be made up at a future date. Normally a recovery plan would be agreed with The Pensions Regulator (TPR) at the earliest point. We expect that in the current circumstances the matter of arrears will be addressed with TPR at a later date. 
  • Where a business has ceased trading, no further contributions will be payable. However, if the scheme was in arrears prior to this there may be a claim on the assets of the business in respect of missed contributions, as is normally the case. 

This is our current understanding of the Government's latest update on employer contributions based on conversations we are having with the Government and Regulators. 


  • Under the Coronavirus Job Retention Scheme, all UK employers with a PAYE scheme will be able to access support to continue paying part of their employees’ salaries for those who would otherwise have been laid off during this crisis. 
  • This applies to employees who have been asked to stop working, but who are being kept on the payroll, otherwise described as ‘furloughed workers’. This is to safeguard workers from being made redundant. Up to 31st August 2020, HMRC will reimburse the lower of 80% of their salary or £2,500 per month. After this, employers must continue to pay fully-furloughed employees at least 80% of their earnings capped at £2,500 but for September, HMRC will reimburse a maximum of 70% of salary capped at £2,187.50. For October, this will reduce to a maximum of 60% of salary capped at £1,875. Pro-rated payments will be made if the furloughed employee is working part-time from 1st July 2020. 
  • Up to 31st July 2020, the scheme also paid the associated employer NI contributions and AE minimum employer pension contributions (capped at 3%), making the total maximum payment £2,805 per employee per month.
  • From 1st November 2020, HMRC will return to the 'August' basis of reimbursing employers of fully-furloughed workers with 80% of earnings capped at £2,500. Pro-rated payments continue to apply for hours not worked under flexible furlough. This level of support for employer costs will be reviewed in January 2021.
  • The Coronavirus Job Retention Scheme will cover the costs backdated to 1st March 2020. Flexible furlough – allowing previously furloughed workers to work part-time – was introduced on 1st July 2020. The scheme was originally planned to close on 31st October 2020. However, it has been extended to 31st March 2021.


For further information including how to access the scheme, visit

Frequently asked questions

What is the process for the reporting of late payments?

The Pensions Regulator (TPR) adopts a risk-based approach to contribution monitoring so resource is focused on sectors or employers which it deems to represent the greatest level of risk to pension provision. The economic backdrop has changed significantly as a result of the global COVID-19 pandemic and we expect TPR to be adapting its approach to reflect current and future conditions.

Scottish Widows, as a pension administrator, normally has a duty to inform TPR when pension contributions have been in arrears for 90 days. TPR relaxed that obligation in light of the current crisis and for a period, Scottish Widows is only required to notify TPR of arrears after a period of 150 days. TPR reviewed this position in September 2020 and stated that normal reporting requirements will resume from 1st January 2021. 

If you have any concerns relating to your clients’ firms’ ability to maintain pension contributions you should contact TPR.

What should I do now that TPR has confirmed that employers must continue to make pension contributions?

Any employer who has concerns about their ability to make payments should contact TPR to discuss their situation and agree a way forward. If your client’s scheme is with Scottish Widows they should also notify us of their discussion with TPR.

What amount should the employer contribution be based on?

Whatever pensionable pay the employee has in the pay period. 

What happens if employees are off sick?

AE legislation requires Statutory Sick Pay (SSP) to be treated as part of qualifying earnings, or as part of basic pay under set 1, 2 or 3 certification. These rules apply to both AE schemes and qualifying workplace pension schemes (QWPSs) using contractual enrolment. Employers will need to continue deducting contributions from the members’ salaries. 

To help in the immediate situation, the Government has amended the rules for SSP linked to COVID-19. More details are available here.

If an employee decides to stop making contributions given the reduction in wage, should the employer still pay in?

For contract-based schemes, unless a contractual obligation exists within the employee’s contract of employment, the employer is not obliged to pay if the employee ceases payments, but can choose to maintain their payments.

For trust-based schemes, the scheme rules should be checked to see whether the employer payments can also stop, but again the employer can choose to maintain their payments.

Where an employer is in receipt of a Government allowance for furloughed workers, the amount will be based on the employee’s salary. Up to 31st July 2020, this amount was then grossed up to compensate for any Employer NI contributions actually incurred and the minimum 3% employer pension contribution based on qualifying earnings. If claimed, the 3% employer contribution must be paid into the pension scheme, irrespective of what the employee chooses to do.

Should the employer automatically reduce the contributions made given the new salary or offer employees the ability to take a ‘payment holiday’?

All payments made should continue to be determined by the pensionable pay in the respective pay period. If the pensionable pay reduces then we would expect the pension payment to reduce accordingly.

There is no provision within AE legislation which allows employers to offer employees a premium holiday. To do so would be breaking the law.

TPR confirms in its guidance to employers that this rule remains in force. If employers need to discuss specific challenges which they or their workforce are facing in relation to the maintenance of contributions, employers would need to take the matter up with TPR.

If the employer operates a salary sacrifice scheme, do they need to maintain the payments (as they would if the employee was on parental leave for example)?

Salary sacrifice payments made by the employer are a non-cash benefit under a contractual agreement with the employee and are not the employee’s pay. However, depending on specific contract wording, employers are likely to be obliged to continue with the same level of salary sacrifice regardless of the employee’s pay reducing or even ceasing.

Employers will need to check the wording of the salary sacrifice in the employee’s contract to see what ability they have to amend/stop the salary sacrifice. It might be that the current salary sacrifice agreement is limited to a 12 month period and they could amend it at the end of that period.

TPR guidance on furlough, pension contributions and salary sacrifice is available here.

What should employers do with their pensions if having to make employees redundant?

This would be treated in line with any redundancy event.