Share this content
11

Double entry for salary sacrifice pension

What is the double entry for salary sacrifice pensions on the payroll journal?

Didn't find your answer?

Hi, 

It's been a couple of years since I've had to do a payroll journal and I've just taken on the accounts of a small sub of the company that I work for. I'm not sure if I'm getting the journal entries wrong, or if the cashier has paid the wrong net pay figure (...probably the former!).

So, its a small payroll of three people and I have the following...

Salary - 4,636.67

Ee's Pension cont - 9.18

Total Gross pay - 4,645.85

Ee's NIC - 303.29

PAYE - 242.60

Student loan - 13

Unpaid leave - 69.23

Net Pay - 4017.73

Er's NIC - 348.79

Er's pension - 11.47

So, the way I see it is this....

  Dr. Cr.  
Sals P&L 4,645.85 69.23  
Er's NIC P&L 348.79    
Sals control   4017.73  
PAYE   907.68 (303.29+242.6+13+348.79)
Pension control   20.65 (9.18+11.47)
Pensions P&L 11.47                      
  4,936.88 4,946.06 - out by (9.18)

No matter how I do this, i'm always out by the Ee's pension amount - should the gross pay figure be reduced by the ee's pension? ...as this is a salary sacrifice, I'm assuming that the total P&L cost of the salary is the gross pay and the ee's pension (which is how the report presents it).

(The net pay figure matches the payroll reports and the amount that has gone out of the bank).

Replies (11)

Please login or register to join the discussion.

avatar
By NBWNBW
08th Feb 2018 11:34

I'm no expert but it looks to me like the net pay is £9.18 too high

Thanks (0)
Replying to NBWNBW:
avatar
By Numberwang
08th Feb 2018 11:56

...this is what I'm thinking - it looks as if the Ee's pension amount has been paid over to the employee.

Surely the double entry to get the Ee's pension into Pensions Control would be Debit Salaries Control and Credit Pensions Control ?

Thanks (0)
avatar
By jcace
08th Feb 2018 12:29

What makes you say this is a salary sacrifice pension? It doesn't appear to be. The employee's contribution appears to be exactly that - the employee's contribution. It has even been deducted net of tax. A salary sacrifice would involve the gross salary being lower (the employee has sacrificed some salary) and the employer's contribution being higher by the same amount. What is the salary figure on which the tax, NI and pension contributions are calculated?

Thanks (0)
Replying to jcace:
avatar
By Numberwang
08th Feb 2018 12:55

You're probably correct - I was initially confused as to why the Ee's pension contribution is added to the gross salary.

Thanks (0)
avatar
By Numberwang
08th Feb 2018 14:54

Looking at the reports from Iris, the 'Company Totals' report shows Gross pay as Net Pensions + Salary (9.18+4636.67=4645.85) and, at the bottom in the 'Cost of Payroll section the 4645.85 is added to Er's NI (which comes to 4994.64).
If I look at the 'Payroll Summary' report, the Ee's pension contribution is shown as an after tax addition to payroll (therefore, tax/NI are calculated before the pension is added).

Shouldn't the pension contribution be taken as an after tax deduction rather than an addition?

Thanks (0)
Replying to Numberwang:
avatar
By jcace
08th Feb 2018 15:31

Yes, the employee contribution should ordinarily be an after-tax deduction. It sounds as though someone has set this up incorrectly - perhaps they tried to set up a salary sacrifice scheme, but they don't appear to have done it properly.

Thanks (1)
Euan's picture
By Euan MacLennan
09th Feb 2018 10:24

"Salary sacrifice" and "pension contributions" are two separate matters and conflating them often leads to confusion.

If you must do it, the key point is that a salary sacrifice will result in the employer making the contribution, not the employee (assuming that whole contribution is funded by the salary sacrifice).

We cannot know if this pension contribution was set up correctly on the company's payroll, but on the face of it, it is an employee contribution under the (not very explicitly named) "net pay arrangement", where the employee's gross contribution is deducted from his gross pay before calculating tax.

Thanks (0)
Replying to Euan MacLennan:
avatar
By jcace
09th Feb 2018 11:17

Except if you look at the amounts or Ees' and Er's contributions, the Ees' is 20% less than the Er's, suggesting that the employees' contributions are paid net of tax.

Thanks (0)
Replying to jcace:
Euan's picture
By Euan MacLennan
09th Feb 2018 12:42

Fair comment
... but it's all a guessing game!

Thanks (0)
Replying to Euan MacLennan:
avatar
By Numberwang
09th Feb 2018 12:56

Euan MacLennan wrote:

Fair comment
... but it's all a guessing game!

Agreed!

Something's definitely wrong though - I didn't wan't to go storming in on the payroll manager making accusations based solely on instinct without a few other opinions.
I've also checked the main company's payroll and, despite being on the same pension scheme, Iris is set up completely differently - so I think I have enough evidence to now go and have a chat!

Thanks (0)
avatar
By Numberwang
09th Feb 2018 16:59

So, just to complete this thread - I had a word with the payroll manager, and yes, it turns out that the pensions had been set up incorrectly in Iris and it looks like we've actually been paying the Ee's contribution to the employee on top of their salary!

Thanks to everyone for confirming that my instincts are still functioning correctly :-)

Thanks (0)
Share this content