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How to use Reference Salary for Employer Pension (Statutory Payments)

Learn about the Reference Salary for employer pension field (statutory payments), how to use it and the calculation logic.

A new Reference Salary field has been introduced to support the calculation of Employer Pension contributions during statutory leave.

This enhancement ensures that, where required, employer pension contributions are calculated using the employee’s contractual salary, rather than reduced statutory pay, supporting compliance for statutory payments such as SMP and SAP.

This field allows payroll administrators to enter the employee’s contractual annual salary to be used for pension calculations during statutory leave.

How to configure Reference Salary

  1. Navigate to People then Absence
  2. Select Maternity / Adoption 
  3. Click on Payroll Details then Reference Salary

Employer Pension Calculation Logic

Reference Salary Entered (Statutory Payment Active)

If selected:

  • A statutory payment (SMP or SAP) is active.
  • A Reference Salary has been entered.
  • The pension scheme is earnings-based.

Then:

  • Employer pension contributions are calculated using the Reference Salary.

The system will:

  • Convert the annual Reference Salary into a periodic value.
  • Use this value as the basis for the employer pension calculation.
No Reference Salary Entered (Statutory Payment Active)

If selected:

  • A statutory payment (SMP or SAP) is active.
  • No Reference Salary has been entered.

Then:

  • Employer pension contributions are calculated using the last available Pensionable Pay prior to the start of statutory leave.

This ensures continuity of pension contributions where no contractual salary override is provided.

Calculation Notes
  • The Reference Salary must be entered as an annual value.
  • The system converts this to a pay period equivalent for calculation purposes.
  • Pension contributions are calculated using standard scheme rules applied to the derived periodic value.
Not Supported
  • Non-earnings-based pension schemes, such as fixed contribution schemes that are not based on earnings.
  • Other statutory payments, such as SSP, SPP, and SNCP.
  • Automatic derivation of the Reference Salary. The Reference Salary must be entered manually.
Limitations
  • The Reference Salary must be maintained manually for each absence record.
  • There is no system validation against the contractual salary stored elsewhere in the system.
  • The Reference Salary is not automatically updated if the salary changes during statutory leave.