Employee Classifications & Qualifying Earnings

Employee Classifications

When it comes to assessing employees, employers will need to identify which category or classification their workforce falls into. The employer will have different duties and obligations for each employee depending upon their classification.

There are 3 employee classifications, these are eligible jobholder, non-eligible jobholder and entitled worker. Employees are grouped into these categories based on their age and earnings.

Employee Earnings Employee Age
16 - 21 22 - State pension age State pension age - 74
Less than or equal to £5,876* Entitled worker Entitled worker Entitled worker
Over £5,876* but no more than £10,000* Non-eligible jobholder Non-eligible jobholder Non-eligible jobholder
Over £10,000* Non-eligible jobholder Eligible jobholder Non-eligible jobholder

* These figures are for the 2017–2018 tax year.

1. Eligible Jobholder

These are employees who are:

  • Aged between 22 years and state pension age
  • Ordinarily working in the UK under their contract of employment
  • Has qualifying earnings payable by the employer in the relevant pay reference period that are above the earnings trigger for auto enrolment. Current tax year 2017/18 is £10,000 per annum
  • Employer obligation: For eligible jobholders employers must automatically enrol employees and contribute to their pension fund, except in cases where an employee has elected to opt out.

2. Non-eligible Jobholder

The following requirements must be met to be considered a non-eligible jobholder:

  • Work in the UK
  • Aged between 16 and 74
  • Earn less than the amount required to be eligible for automatic enrolment but more than the lower earnings threshold (more than £5,876 annually, £490 monthly, or £113 weekly but no more than £10,000 annually for 2017–2018 tax year)

OR

  • Work in the UK
  • Aged between 16 and 21 OR aged between State Pension Age and 74
  • Earn the minimum amount eligible for automatic enrolment (more than £10,000 annually, £833 monthly, or £192 weekly for 2017–2018 tax year)
  • Employer obligation: Employers do not have to automatically enrol these employees, however employees have the choice to opt in, and if they do so then the employer must make contributions to their pension fund.

3. Entitled Worker

The following requirements must be met to be considered an entitled worker:

  • Work in the UK
  • Aged between 16 and 74
  • Earn the qualifying lower earnings threshold or less (£5,876 annually, £490 monthly, or £113 weekly for the 2017–2018 tax year)
  • Employer obligation: An entitled worker is someone who does not have qualifying earnings to fit the jobholder description but is entitled to join a workplace pension scheme. Employers do not have to automatically enrol these employees, and if an employee chooses to opt in the employer is under no obligation to contribute to their pension fund.

Auto Enrolment Thresholds Payment Period Breakdown

This table details the threshold for auto enrolment by payment period. These figures are based on the thresholds for the 2017–2018 tax year.

2017 – 2018 Annual 1 week Fortnight 4 weeks 1 month 1 quarter Bi-annual
Lower level of qualifying earnings £5,876 £113 £226 £452 £490 £1,469 £2,938
Earnings trigger for auto enrolment £10,000 £192 £384 £768 £833 £2,499 £4,998
Upper level of qualifying earnings £45,000 £866 £1,731 £3,462 £3,750 £11,250 £22,500

Qualifying Earnings

Employers make contributions to an employee's pension fund based on a percentage of the employee's qualified earnings (assuming the employee is not an entitled worker). Qualified earnings are earnings that are between £5,876 and £45,000*, and that are made up of any of the following components that are due to be paid to the employee;

  • Salary
  • Wages
  • Commission
  • Bonuses
  • Overtime
  • Statutory sick pay
  • Statutory maternity pay
  • Ordinary or additional statutory paternity pay
  • Statutory adoption pay
  • Large town allowance
  • Some P11D benefits

Expenses such as food, travel or car allowance are not considered to form part of an employee's qualifying earnings.

The assessment of whether a component of pay constitutes an element of qualifying earnings is the responsibility of the employer. For any earnings above the qualified earnings threshold of £45,000* the employer is under no obligation to contribute to the employee's pension fund.

Click here to learn more about auto enrolment contribution rates and contribution phasing.

Banded and Unbanded Earnings

Banded earnings is related to contributions made on qualifying earnings, between the lower earnings threshold of £5,876 and the upper limit earnings threshold of £45,000 (these figures will change for each year). Earnings between these two amounts are eligible for the minimum percentage contributions as stipulated by auto enrolment legislation. Earnings outside of this 'band' are therefore not eligible for contributions which means the first £5,876 is not counted and neither are any earnings above the £45,000 threshold.

Unbanded earnings totally disregard the lower earnings trigger and the upper limit earnings thresholds, and contributions are made on total qualifying earnings (the total amount of the employee's salary). Employers can choose which basis to use when calculating contributions towards their employees' pension pots.

* These figures are for the 2017–2018 tax year.

Do you have any questions? If you have any questions or queries related to employee classifications or qualifying earnings then please do get in touch, please contact us using the live chat option at the bottom of the page and our team of experts will do their best to help you.

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