7th April 2020
When reviewing the latest Government guidelines in relation to calculating furlough pay for employees (released 6th April 2020), there is an interesting comment regarding calculating the furlough pay where the employee had historically agreed to a salary sacrifice auto-enrolment pension deduction.
For a lot of employee pension contributions, the employee has agreed to a salary sacrifice to save PAYE and National Insurance. The sacrificed salary is then paid to the Pension Provider by their employer.
Under the furlough scheme, this has an interesting effect on the furlough calculation as the salary sacrifice penalises the employer for this arrangement. Due to this, the Government have agreed that employees can treat the Coronavirus as a ‘life event’ and as such can opt-out of the salary sacrifice arrangement whilst furloughed.
We must stress that we are not financial advisors and that the below examples are based on our understanding of the ‘life event’ opt-out. We do not know whether the employee continues to make pension contributions on the adjusted Gross Pay and therefore the examples are based on the savings for the Company only if the employee remains with the salary sacrifice option.
The employee will benefit in the period of furlough as their Gross Pay is adjusted back up to the pre salary sacrifice amount and they will then receive 80% of the new Gross Pay figure.
If your employee therefore asks to be opted-out of the auto-enrolment salary sacrifice pension arrangement, we hope that the examples below will assist you.