Pension Contribution Cost

Many people will have heard how expensive this burden is going to be on families who just want childcare for their children and you may feel panicked about what this cost is going to mean for you. We have created a calculator for you below so that you can see what the costs will be for you and your employee. We hope that you will be pleasantly surprised as many clients have contacted us worried about how much this is going to cost them and have been pleasantly surprised when we have given them the figures.

If you have a net pay agreement with your nanny, then you should consider changing it to a gross agreement. The reason for this is that with a gross agreement the employee pays their pension contribution out of their net salary (so you pay them a slightly lower net pay each month). If you remain on a net agreement then you will have to pay the employees contribution and the employers contribution in addition to the net salary that you currently pay them. But also, the employees pension contribution will make their gross salary higher which then attracts a higher tax and NI contribution, so you end up paying those as well. Overall, it can be a very costly setup if you remain on a net agreement.

The employer must always pay the employer percentage, but they could also choose to pay the full amount instead (so the employer could pay 8% and the employee 0%).  With this in mind, if you do decide to remain on a net pay agreement then if you opt for the employer to pay the full percentage contributions and the employee none it will save you money as you will not have to pay the additional spiked tax and NI costs that happen otherwise.

Phased Introduction

The government have arranged a phased introduction to pensions and so the contribution payments will go up at set intervals. The dates and percentages are listed here for you:

Dates Employer Employee Government Total
Present to 5th April 2019 2% 2.4% 0.6% 5%
6th April 2019 onwards 3% 4% 1% 8%

Qualifying or Full Earnings

You will also have the choice of calculating the pension contribution based on the full or qualifying earnings. In basic terms, qualifying earnings will cost you less.

If you choose full earnings then the percentages will be applied to the whole gross salary. If you choose qualifying earnings then the percentages will only be applied to part of the gross salary (full monthly gross salary (capped at £4189.00)  - £520.00 = qualifying earnings), thus reducing the costs of the pension.

Cost Estimate

To get the approximate cost based on your exact payroll, please look up the gross pay amount on your latest payslip and enter it below. If you have a net agreement then this will not be accurate unless you choose for the employer to pay the full percentages and the employee none (then it will work, you just need to add the employer and employee figures together).

Please note this calculator is only appropriate for a salary up to £50,000.

Enter Monthly Gross Salary £
  Employer’s Contribution
  Based on Full Earnings Based on Qualifying Earnings
Prior to April 2018
2% Contribution
3% Contribution
  Employee’s Contribution
  Based on Full Earnings Based on Qualifying Earnings
Prior to April 2018
3% Contribution
5% Contribution