Furlough of an Employee on Parental Leave and Potential Impact on Pensions Contributions
The Coronavirus Job Retention Scheme (“CJRS”) guidance confirms that there is no prohibition on an employee on parental leave being furloughed (see Coronavirus: Job Retention Scheme). The normal rules for parental leave and pay still apply, but employers can make claims through the scheme for enhanced contractual pay for employees who qualify for parental pay. An employer could therefore make a claim to cover 80% of an employee’s parental leave salary above statutory parental pay up to £2,500 per month.
Throughout this note references to “parental leave” or “parental pay” encompass statutory adoption leave and pay.
In defined contribution pension schemes
General rules for defined contribution pension schemes
Employer’s contributions are based on the employee’s pensionable earnings before parental leave begins. Employee contributions are based on actual earnings during parental leave. If the employer matches the employee’s contributions, they must continue to match the same level of contributions that the employee was making before the parental leave started.
Employee and Employer contributions for a furloughed employee on parental leave
If an employee is furloughed, both they and their employer must continue making pension contributions, at the rate required by the employment contract, but calculated on the basis of the furlough salary. The employer can claim a grant from the CJRS to cover their pension contributions up to a limit of 3% (the automatic enrolment minimum), of the furlough salary above the lower earnings limit. The CJRS guidance confirms that no grant will be provided to cover any employer contributions over and above this amount, even if they are contractually required.
We do not yet have clear guidance as to whether furlough provisions for pension contributions take precedence over parental provisions, for pension contributions or vice versa.
- If parental provisions take precedence, employer contributions will be calculated on the basis of the employee’s pensionable salary before they began their parental leave and employee contributions will be calculated on the basis of the salary they are actually receiving.
- If furlough provisions take precedence both the employer and the employee contributions will be calculated on the basis of the salary the employee is actually receiving.
In defined benefit pension schemes
General rules for defined benefit pension schemes
Any periods spent on paid parental leave are treated as pensionable service. Benefits are accrued based on the level of pensionable earnings before parental leave began. Employee contributions are based on actual earnings during parental leave.
Employee and employer pension contributions for a furloughed employee on parental leave
Please see our note regarding Coronavirus and Final Salary Schemes for more detailed guidance on the impact of furlough on pension contributions in defined benefit pension schemes.
As with defined contribution schemes, the basis of calculation for employee contributions will depend upon whether parental provisions or furlough provisions prevail in relation to pension contributions.
In salary sacrifice arrangements
Ordinarily employment contract provisions may allow for salary sacrifice to operate in relation to any enhanced parental pay an employee receives above the statutory minimum, however the guidance confirms that furlough pay cannot be sacrificed (see our note regarding Coronavirus and Salary Sacrifice Schemes for further details).
For more information please contact Kim Jones
If you would like to talk through the consequences for your business, please email us and one of our team will get in touch.
The content of this page is a summary of the law in force at the date of publication and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.
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