Pensionable earnings definition
Qualifying Earnings as an earnings definition
Qualifying earnings is a band of earnings that fall within the lower and upper earnings limit. This band of earnings is what is used to calculate pension contributions. The earnings thresholds for 2026/27 tax year: £6,240 per annum (lower earnings limit) to £50,270 per annum (upper earnings limit). It includes all pensionable elements of your salary, including commission, bonuses, etc.
Contribution rates
- Employer – 3%
- Employee – 5%
Other earnings definitions
| Basic Pay - Set 1 | Basic Pay - Set 2 | Total Pay - Set 3 |
| With this method, a percentage of your basic salary is used to calculate your pension contributions. | With this method, a percentage of your basic salary is used to calculate your pension contributions. | With this method, a percentage of your gross salary is used to calculate your pension contributions. |
| Pensionable earnings are your basic salary before any commission, bonuses, or overtime are added. | It uses your basic salary before any commission, bonuses or overtime is added. | Doesn’t include any income from dividends. |
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Contribution Rates:
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You will need to ensure that the gross earnings used to calculate contributions for all staff in the scheme when added together are at least 85% of their total earnings.
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Contribution Rates:
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Auto enrolment laws give you some flexibility and discretion when deciding how to operate a workplace pension. Qualifying Earnings are the regulatory minimum and are based on earnings between the Lower Earnings Limit and stop at the Upper Earnings Limit.
However, you can also define pensionable salary to be Basic Salary or Total Earnings. The difference between each is shown below:
| Pay elements that must be included | * Qualifying Earnings | Basic Salary | Total Earnings |
| Earnings before deductions (salary/wages) | YES | YES | YES |
| Holiday pay | YES | YES | YES |
| Statutory benefits such as: maternity, paternity, adoption and sick pay delivered through the payroll | YES | YES | YES |
| Bonuses | YES | OPTIONAL | YES |
| Overtime | YES | OPTIONAL | YES |
| Commission | YES | OPTIONAL | YES |
*Qualifying Earnings start from the Lower Earnings Limit and stop at the Upper Earnings Limit (£520 to £4,189 a month in 2025/26)
The definition of pensionable salary will dictate the minimum contribution rates that must be made:
| Pensionable Salary Definition | Employer Minimum | Total Minimum | Shortfall |
| Qualifying Earnings (minimum requirement) | 3% | 8% | 5% |
| At least Basic Salary (known as 'Set 1') | 4% | 9% | 5% |
| At least Basic Salary, which is 85% or more of ^Total Earnings (known as 'Set 2') | 3% | 8% | 5% |
| Total Earnings (known as 'Set 3') | 3% | 7% | 4% |
Notes:
- The percentage shown are the minimums and the employers can choose a structure requiring more to be paid
- Employees are required to contribute at least the shortfall between the employer's chosen percentage and the Total Minimum percentage
- ^ Set 2 is only available is pensionable earnings are at least 85% of the aggregated total earnings, calculated as a group of employees
Are KIT/Keeping in touch days pensionable?
For auto enrolment, using qualifying earnings as your earnings definition, yes KIT/Keeping in touch days are pensionable. If using a different earnings definition to calculate pension contributions (basic set 1, 2 or 3/gross earnings), it would depend on the contract of employment.
Understanding the differences between pensionable pay definitions is important. If you are considering changing the pensionable pay definition you may need to consult with your employees if the change increases their contributions. Any change will require an addendum to your Participation Agreement and system set up. Please contact us via our Help Centre.