These two types of earnings are both critical factors in determining how much you’ll pay into your workplace pension every month.

Qualifying earnings is a basis used to calculate your workplace pension contributions. At the same time, pensionable earnings are the total of a basic salary plus other forms of remuneration owed.

Essentially, most payments provided permanently are pensionable, such as overtime, commission, bonuses and statutory payments such as maternity/paternity and sick pay.

What are qualifying earnings?

Qualifying earnings are used to calculate pension contributions for automatic enrolment in a workplace pension. These are your earnings before income tax, and National Insurance Contributions are deducted. Qualifying earnings fall between a lower and upper earnings band; for the 2020/21 tax year, this is between £6,240 and £50,000. These figures are reviewed every year by the government.

If your employer is using qualifying earnings to calculate pension contributions, your contribution percentage will fall between £6,240 and £50,000. So, say you earn £22,000 a year, the first £6,240 of your earnings wouldn’t be included in the calculation, so your qualifying earnings would be £15,760.

From these qualifying earnings, a threshold exists to determine your pension contribution based on monthly earnings:

  • Lower level of £520 monthly earnings
  • Upper level of £4,167 monthly earnings

So, say you’re paid £3,000 a month (pensionable earnings). This is below the upper earnings threshold, so only the lower earnings threshold of £520 would be deducted. The qualifying earnings on which pension contributions should be based is £2,480.

What are pensionable earnings?

All of the following are considered pensionable earnings and are, therefore, included in qualifying earnings when calculating pension contribution:

  • Salary
  • Overtime
  • Commission
  • Bonuses
  • Statutory sick pay
  • Maternity/paternity pay
  • Adoption pay
  • Holiday pay

If qualifying earnings are being used to calculate pension contributions, the minimum contribution rate of someone’s pensionable earnings, as of 6th April 2019, is:

  • Total: 8%
  • Employer: 3% +
  • Worker: 5% +

Essentially, qualifying earnings and pensionable earnings are both terms used to describe what your earnings are in total and what percentage of these earnings will contribute to your workplace pension.