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TPR clarifies treatment of salary sacrifice under furlough

TPR clarifies treatment of salary sacrifice under furlough

The Pensions Regulator has issued guidance to large employers stating they must continue to pay furloughed workers’ pension contributions as normal where they have entered into a salary sacrifice arrangement.

The guidance, published last week (April 17), stated that a business receiving a grant under the Coronavirus Job Retention Scheme (CJRS) will still have to calculate the contribution where a salary sacrifice arrangement is in place and pay this accordingly.

However, as the grant claimed must be paid to a furloughed worker in the form of money this may mean that, where a salary sacrifice arrangement is in place for pensions, an employer will need to amend their payroll process to calculate the contribution to be paid to the scheme. 

A salary sacrifice arrangement is a contractual agreement between the staff member and their employer, where the worker agrees to give up some of their salary in return for a benefit such as a pension contribution by the employer. 

When salary sacrifice is operated then, under the pension scheme rules, the obligation is on the employer to pay the total contribution, however it is calculated.

The guidance for CJRS states that when calculating 80 per cent of a furloughed worker’s salary or wage, employers should use the amount after the salary has been sacrificed. 

Therefore, the pay during the furlough period should be treated as the post-sacrifice pay so that no further sacrifice is made on that amount.

The TPR stated: “It is important to note that this is just for the purposes of making a claim for a grant from government and what that grant can be used for. 

“Any contractual obligations you have entered into as part of the salary sacrifice arrangements and the obligation in the pension scheme rules continue to apply as normal, so the first step for an employer is to consider their contractual arrangements.

“If, as a result of your contractual arrangements, you cannot reduce pay then you will continue to pay your furloughed workers their full pay and calculate pension contributions and the salary sacrifice element as usual on this pay.”

If a company wants to claim a grant through the CJRS then they may have to agree a reduction in pay with their employee, TPR warned.

This is because the grant only covers the lower of 80 per cent of furloughed workers' pay or £2,500 a month plus the associated employer’s national insurance contribution costs and pension contribution up to the level of the AE statutory minimum employer contribution.

amy.austin@ft.com

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