ER Pension on Payslips: Employer Guide

Employers and HR teams often receive queries from employees asking what “ER pension” means on their payslip. The abbreviation is simple but important. “ER” refers to the employer’s pension contribution, a mandatory feature of workplace pensions under the Pensions Act 2008 for eligible staff under the auto-enrolment regime. Understanding how these contributions work, why they appear on the payslip and how they interact with employee deductions is central to accurate payroll and compliance with auto-enrolment law. For employers, clarity on this point supports transparency, improves employee understanding and reduces the risk of regulatory issues or intervention by The Pensions Regulator.

What this article is about: This guide explains what “ER pension” means, how employer contributions are calculated and why the information matters for compliance and payroll accuracy. It breaks down legal duties under auto-enrolment, outlines how contributions should be recorded and explains best practice for HR and payroll teams. The aim is to give business owners and HR professionals a clear, practical understanding of employer pension contributions as they relate to payslips, ensuring compliance with the Pensions Act 2008, related regulations and The Pensions Regulator’s expectations, including minimum contribution levels and record-keeping duties.

Section A: Understanding ER Pension on Payslips

Employer pension contributions are a core feature of the UK workplace pension framework. When “ER pension” appears on a payslip, it refers to the amount the employer contributes into the employee’s pension pot. This contribution reflects statutory auto-enrolment duties for eligible staff and many contractual pension arrangements for other workers. This section explains what the abbreviation means in practice, how it differs from employee contributions and why payroll accuracy is central to meeting an employer’s statutory duties. The aim is to give HR teams and business owners a clear foundation before moving into the legal and operational requirements later in the article.

1. Meaning of “ER pension” on a payslip

“ER pension” stands for “Employer pension contribution”. It is the amount the employer pays directly into the employee’s pension scheme for that pay period. This contribution is in addition to any amount deducted from the employee’s pay, which typically shows as “EE pension”. The employer amount does not reduce the employee’s net pay. Instead, it is an additional cost to the employer and must be funded accordingly. Where a worker is an eligible jobholder under auto-enrolment rules, the ER pension figure must at least meet the statutory minimum employer contribution requirements.

2. Difference between ER and EE pension contributions

EE pension is the employee’s contribution and is deducted from gross pay, subject to the method used for tax relief. ER pension is entirely employer-funded. Both contributions appear on the payslip so the employee can see how much is being paid into their pension by both parties. The structure of these contributions depends on the pension scheme type and the employer’s chosen method for handling tax relief (net pay arrangement or relief at source), or whether a salary sacrifice arrangement is in place.

Under the Employment Rights Act 1996, where an employee’s pension contribution is deducted from wages, that deduction must be itemised on the payslip. In other words, if EE contributions are taken from pay, they must be shown as a separate deduction line. ER contributions, by contrast, are not deducted from the employee’s pay and therefore are not a mandatory item, although they are often displayed for transparency.

3. Pension contribution rules under auto-enrolment

The Pensions Act 2008 requires employers to automatically enrol eligible workers into a qualifying workplace pension scheme and make minimum employer contributions. The current statutory minimum employer contribution is 3% of qualifying earnings, with the total minimum (employer plus employee) usually at 8%, although specific schemes may require higher levels. Employers can choose to contribute more than the minimum.

The employer’s ER pension contribution must reflect the correct percentage and any additional scheme rules. Payroll configuration must align with both the statutory minimum requirements for auto-enrolment and any enhanced contribution rates set out in contracts of employment or scheme documentation, as this will directly affect the ER pension figure generated for each pay period.

4. Whether employers must show ER pension on a payslip

UK law does not require ER contributions to be shown on the payslip, but most payroll systems display them for transparency and internal record-keeping. By contrast, where employee pension contributions are deducted from pay, those EE deductions must be shown on the payslip as a separate item, because they are a deduction from wages within the meaning of the Employment Rights Act 1996.

Even where it is not mandatory to show ER pension on the payslip, displaying ER contributions helps employees understand the total value of their pension saving and reduces routine HR enquiries. Many employers include ER pension figures as part of their standard payslip layout to demonstrate the employer’s investment in the employee’s pension and to support clearer, more complete records.

5. Scheme variations: net pay, relief at source and salary sacrifice

The method for handling tax relief affects how contributions appear on the payslip and in payroll records:

• Net pay arrangement – EE contributions are deducted before tax, reducing the employee’s taxable pay, and ER contributions are paid on top. The payslip will typically show an EE pension deduction and an ER pension contribution.
• Relief at source – EE contributions are taken after tax, and the pension provider claims tax relief from HMRC, which is added to the pension pot. ER contributions are paid in addition to the employee’s after-tax contributions.
• Salary sacrifice – The employee agrees a contractual reduction in salary, and the employer increases the ER pension contribution correspondingly. In many cases, there may be no separate EE pension deduction shown because the entire pension contribution is technically employer-funded under the revised salary arrangement.

Salary sacrifice can therefore alter how contributions are shown. EE pension may no longer appear as a deduction, because the agreed reduction in contractual salary replaces the employee’s direct contribution and is reflected in a higher ER pension entry. Employers must ensure that salary sacrifice arrangements are documented correctly and that the payslip presentation remains consistent with the contractual arrangement and auto-enrolment duties.

In all cases, HR and payroll teams should understand which method is in use and check that the payslip clearly distinguishes between any deductions from pay and employer-funded contributions, so that both employees and internal stakeholders can see how the pension contributions have been structured.

Section A Summary

ER pension refers to the employer’s contribution into the workplace pension scheme. While ER contributions are not legally required to appear on a payslip, most employers choose to show them for clarity and transparency. Employee contributions that are deducted from wages must, however, be itemised as a payslip deduction. Understanding the distinction between ER and EE contributions, and how pension tax relief arrangements such as net pay, relief at source and salary sacrifice affect payslip presentation, is essential for accurate payroll and compliant auto-enrolment administration.

Section B: Employer Legal Duties Under Auto-Enrolment

Employer pension contributions sit within a wider framework of statutory duties created by the Pensions Act 2008. Every UK employer must assess their workforce, enrol eligible workers into a qualifying pension scheme and make the correct employer contributions. “ER pension” on a payslip therefore reflects legal obligations that carry enforcement consequences if breached. This section sets out the employer’s statutory duties, explains how worker categories affect obligations and highlights why correct ER pension reporting is central to compliance with The Pensions Regulator’s requirements.

1. Employer duties under the Pensions Act 2008

The Pensions Act 2008 introduced automatic enrolment, requiring employers to set up and contribute to a workplace pension for eligible staff. These duties apply regardless of business size or sector. Employers must have a qualifying pension scheme in place, automatically enrol eligible jobholders and maintain ongoing contributions at or above the statutory minimum levels. The Pensions Regulator (TPR) monitors compliance and can issue enforcement notices and penalties where employers fail to meet their duties.

2. Assessing worker categories: eligible, non-eligible and entitled

Employer contribution duties depend on the worker’s classification:

• Eligible jobholders must be automatically enrolled and receive employer pension contributions.
• Non-eligible jobholders have the right to opt in. If they opt in, the employer must contribute at the statutory minimum rate.
• Entitled workers have the right to join a pension scheme, but employers are not legally required to make employer contributions unless they choose to provide a contributory scheme.

Accurate assessment ensures that correct ER pension obligations apply. Misclassification can lead to underpayment of employer contributions, which TPR treats as a compliance breach. Employers must reassess staff whenever earnings or circumstances change in a way that may alter their worker category.

3. Minimum employer contribution rates

The statutory minimum employer contribution is currently 3% of qualifying earnings, with a total minimum contribution (employer plus employee) of 8%. Employers may choose or be contractually obliged to contribute more than the minimum depending on their pension scheme rules. Employers must apply the correct percentage consistently and ensure the scheme meets qualifying criteria.

Contribution levels must be applied based on the correct earnings definition. If the scheme does not use qualifying earnings, employers must certify that the alternative pensionable earnings structure meets one of The Pensions Regulator’s certification “sets” to ensure legal compliance. Failure to use the correct contribution rate or certify an alternative structure can result in underpayments and enforcement action.

4. Handling opt-outs, postponement and re-enrolment

Employers must apply auto-enrolment processes correctly to ensure ER pension contributions start and stop at the appropriate times:

• Opt-outs: Employees can opt out within the statutory one-month opt-out period. If they do, the employer must process a refund of EE contributions and stop ER contributions immediately. After the one-month window, no refund is due and contributions remain invested.
• Postponement: Employers may postpone enrolment for up to three months but must issue the statutory postponement notice to the worker.
• Re-enrolment: Every three years employers must re-enrol eligible staff who previously opted out. Employers must choose a re-enrolment date within a six-month statutory window and ensure ER contributions restart correctly.

Correct implementation of these processes ensures that employer contributions appear in payroll records at the right time and prevents gaps in pension funding.

5. Importance of accurate ER pension reporting for compliance

Accurate employer contributions are central to auto-enrolment compliance. Misreporting or underpayment can result in:

• backdated employer contributions
• the employer funding both employer and employee arrears
• penalties and enforcement action from The Pensions Regulator

If an employer underpays contributions, the employer must fund all missing employer contributions and is also responsible for making up the employee’s missed contributions, with the employee reimbursing the employer for their portion through salary deduction or agreement. Displaying ER pension on payslips supports transparency and helps employers identify errors early. Payroll and HR teams should verify contribution percentages, worker categories and qualifying earnings each pay cycle to ensure compliance.

Section B Summary

Employer pension duties are created by statute, and the ER pension amount reflects these duties in practice. Employers must categorise workers correctly, apply the statutory minimum employer contribution, handle opt-outs and re-enrolment accurately and ensure payroll systems are configured correctly. Clear ER pension reporting supports compliance, reduces risk and strengthens internal governance.

Section C: How ER Pension Contributions Are Calculated

ER pension contributions must be calculated with precision. Employers must apply the correct percentage, use the right earnings basis and ensure the calculation aligns with statutory minimums and any scheme-specific rules. Payroll accuracy is essential because employer contributions form part of the regulated minimum funding level under auto-enrolment. This section sets out the calculation methods, explains how different pay elements are treated and highlights the issues that commonly cause errors.

1. Qualifying earnings vs pensionable earnings

The calculation method depends on the type of pension scheme:

• Qualifying earnings (statutory banded earnings): Contributions are based on earnings between the lower and upper qualifying earnings thresholds set by the government each tax year. These thresholds apply per pay reference period, such as weekly or monthly pay cycles. Qualifying earnings include salary, wages, bonuses, overtime, commission and statutory payments such as SMP or SSP.
• Pensionable earnings (scheme-defined earnings): Some schemes use a broader or narrower definition of pensionable pay, often including basic salary only but sometimes extended to include variable earnings depending on scheme rules.

If a scheme does not use qualifying earnings, employers must certify that the alternative pensionable earnings basis meets one of The Pensions Regulator’s certification sets (Set 1, Set 2 or Set 3). Certification confirms that the scheme meets the legal minimum contribution requirements. Employers must ensure that payroll reflects the certified basis and that contributions align with the certified structure.

2. Calculation examples for employer contributions

Employer contributions are usually expressed as a percentage of either qualifying earnings or scheme-defined pensionable earnings. The statutory minimum employer contribution is currently 3% of qualifying earnings, with the total contribution usually 8%.

Example (qualifying earnings):

• Employee earns £2,500 in a month.
• Qualifying earnings thresholds apply.
• Employer contribution rate = 3%.
• Contribution is applied to earnings between the lower and upper thresholds for that pay reference period.

Example (basic salary scheme):

• Employee earns £2,500 basic salary.
• Scheme requires a 5% employer contribution on all pensionable pay.
• The full £2,500 is used for the calculation.

Payroll must apply the correct basis and percentage every pay period, ensuring any scheme changes, threshold updates or contractual amendments are reflected immediately.

3. Salary sacrifice and its impact on ER pension calculations

Salary sacrifice arrangements convert part of an employee’s gross salary into an additional employer pension contribution. This increases the ER pension figure because contributions formerly shown as EE pension deductions are now treated as employer-funded. Under salary sacrifice, the payslip often shows a higher ER pension contribution and no EE deduction because the entire contribution is technically employer-funded.

Employers must ensure that salary sacrifice arrangements do not reduce an employee’s pay below the National Minimum Wage (NMW) or National Living Wage (NLW), as this would breach statutory pay rules. Before implementing salary sacrifice, employers should carry out a pay impact assessment to confirm continued compliance with NMW or NLW.

4. Treatment of bonuses, overtime and irregular payments

The treatment of variable or irregular pay depends on the scheme’s earnings definition:

• Under qualifying earnings rules, bonuses, commission and overtime count as pensionable earnings even if the employer does not ordinarily treat them as pensionable.
• Under basic salary schemes, irregular pay elements may be excluded unless the scheme rules specify otherwise.
• Salary sacrifice applied to irregular payments may increase the employer-funded contribution.

Employers must review scheme rules carefully and check that payroll configuration applies contributions consistently across all pay types. Failure to include qualifying earnings components correctly can result in underpayments requiring backdated corrections.

5. Common payroll errors affecting ER pension calculations

Several recurring issues cause incorrect ER pension amounts:

• Applying contribution percentages using the wrong earnings basis.
• Misclassifying workers and failing to enrol them on time.
• Incorrect handling of the opt-out or postponement process.
• Ignoring bonuses, commission or overtime in qualifying earnings schemes.
• Not updating payroll for re-enrolment dates.
• Using the wrong tax relief method (net pay vs relief at source).

These errors can lead to missed employer contributions, underfunded pension pots and enforcement action by The Pensions Regulator. Employers must have robust controls to ensure accuracy and consistency across payroll cycles.

Section C Summary

ER pension contributions must be calculated using the correct earnings basis, contribution percentage and tax relief method. Qualifying earnings thresholds change annually and must be checked each year. Salary sacrifice arrangements must remain compliant with minimum wage rules. Accurate treatment of bonuses, overtime and irregular pay is essential for compliance, and employers should maintain strong internal controls to prevent errors.

Section D: HR & Payroll Best Practices for ER Pension Reporting

Accurate ER pension reporting is a central part of payroll compliance. Employees depend on payslips to understand the value of their pension contributions, and regulators expect employers to maintain clear records, apply the correct contribution rates and demonstrate internal oversight. This section outlines practical steps for HR and payroll teams to manage ER pension amounts consistently, reduce risk and improve employee communication.

1. Ensuring payroll accuracy before issuing payslips

Payroll teams must confirm that ER contribution percentages, earnings bases and scheme rules are correctly configured. Even minor setup errors can cause miscalculations. Employers should also ensure that changes to contribution rates, scheme rules or salary sacrifice arrangements are updated before payroll is processed. Each pay reference period must reflect accurate thresholds for qualifying earnings and certified pensionable earnings where relevant.

2. Internal checks to verify ER contribution accuracy

Regular internal audits strengthen compliance and provide assurance that ER pension contributions are calculated correctly. Employers should periodically check contribution records against scheme rules, especially during months involving irregular earnings such as bonuses or overtime. Cross-referencing payroll data with enrolment status and worker categories helps prevent inadvertent underpayments.

3. Communicating pension information to employees

Employees frequently query pension contributions, particularly when salary, work patterns or tax relief arrangements change. Effective communication helps reduce confusion and improves employee confidence. HR teams should provide clear explanations of ER and EE pension amounts, including how contributions are calculated and the impact of salary sacrifice or changes to tax relief methods. Supporting employees with straightforward pension guidance can significantly reduce routine payroll enquiries.

4. Record-keeping and audit readiness

Employers must retain detailed records of contributions, assessment outcomes, enrolment dates, opt-ins, opt-outs and communications. Most records must be kept for at least six years, although opt-out notices must be kept for four years. Payslips showing ER contributions can support transparent record-keeping, but it is not mandatory to display the employer’s contribution. All contribution records must be consistent, accessible and capable of demonstrating compliance if The Pensions Regulator conducts an audit or inspection.

5. When to contact pension scheme providers

Pension providers play a key role in ensuring contributions flow correctly. Employers should escalate issues where discrepancies arise or where changes to payroll may affect how contributions are allocated. Providers can help confirm scheme rules, earnings definitions and contribution flows. Prompt communication is essential where contributions need to be corrected, backdated or reconciled to avoid breaches of auto-enrolment duties.

Section D Summary

Payroll and HR teams must maintain strong internal controls, accurate record-keeping and clear communication to ensure ER pension contributions are correctly calculated and reported. Employers should regularly audit contribution data, respond quickly to discrepancies and engage with pension providers when required. These steps reduce compliance risks and help employees understand the value of employer pension contributions.

FAQs

What does ER pension mean on a payslip?

“ER pension” means “Employer pension contribution”. It is the amount your organisation pays into an employee’s workplace pension scheme for that specific pay period. It is separate from the employee’s own contribution, which usually appears as “EE pension”. The ER amount does not reduce the employee’s pay and is funded entirely by the employer.

Is it mandatory to show ER pension on a payslip?

No. UK law does not require ER pension contributions to be shown on a payslip because they are not a deduction from wages. However, if employee pension contributions (EE) are deducted from pay, those deductions must be shown because they fall under the statutory payslip requirements in the Employment Rights Act 1996.

Most employers voluntarily display ER pension for transparency and to reduce routine queries from employees.

How are employer pension contributions calculated?

ER pension is usually calculated as a percentage of either qualifying earnings or scheme-defined pensionable earnings. The statutory minimum employer contribution is currently 3% of qualifying earnings. Payroll must apply the correct percentage, earnings basis and tax relief method each pay cycle to ensure statutory and scheme compliance.

Why is my ER pension different each month?

ER pensions often change because earnings fluctuate. Bonuses, commission, overtime or reduced pay can alter pensionable earnings depending on scheme rules. Qualifying earnings thresholds apply per pay reference period and may cause variation. Salary sacrifice arrangements can also change how contributions appear on the payslip.

How does salary sacrifice affect ER pension on payslips?

In a salary sacrifice arrangement, part of the employee’s salary is exchanged for additional employer contributions. This usually results in a higher ER pension amount and no EE deduction. Employers must ensure that salary sacrifice does not reduce pay below the National Minimum Wage or National Living Wage.

What should employees do if their ER pension looks incorrect?

Employees should raise concerns with HR or payroll immediately. Employers must investigate errors and correct any missed contributions. If underpayments occurred, the employer must fund the full missing employer contribution and also pay the employee’s missed contribution, which the employee then repays through agreed deductions. Prompt correction is essential to avoid breaches of auto-enrolment duties.

Are bonuses and overtime included for ER pension calculations?

Yes, under qualifying earnings rules bonuses, commission and overtime count towards pensionable earnings even if the employer does not routinely treat them as pensionable. Under basic salary schemes, these elements may be excluded depending on the pension scheme’s rules.

Conclusion

ER pension on a payslip reflects the employer’s contribution to an employee’s workplace pension. While it is not legally required to display ER contributions on the payslip, employers must calculate and pay them accurately under the Pensions Act 2008 and The Pensions Regulator’s guidance. Understanding how employer contributions work, how they are calculated and how they interact with auto-enrolment processes strengthens payroll compliance and reduces the risk of enforcement action.

For HR teams and business owners, accuracy and clarity are critical. Correctly configured payroll systems, clear communication with employees and reliable record-keeping all support compliance with statutory duties. Mistakes can lead to backdated contribution liabilities, with employers required to fund both employer and employee arrears. Providing clear information about ER contributions helps employees understand the value of their pension benefits and reduces avoidable queries.

With strong processes and effective oversight, employers can manage ER pension contributions confidently and maintain compliance across payroll cycles, ensuring employees receive the pension funding they are entitled to under workplace pension law.

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