When it comes to workplace pensions, one of the most important factors to understand is the contribution basis. This determines the amount of pay on which your pension contributions are calculated. Within Paycircle, there are four contribution bases available: basic pay, total pay, tier 2, and qualifying earnings.

The contribution basis chosen has a direct impact on how much money is invested in the employee's pension pot. For employees, understanding which basis applies helps avoid surprises, particularly if bonuses or overtime are a big part of your earnings. For employers, selecting the right basis ensures compliance while balancing costs.

This is the simplest contribution basis and usually just covers the salary. While there may be a very small list of other items included, the key point is that bonuses, overtime, or other additional earnings are excluded. For example, if the employee received a large bonus, the pension contributions would still be based only on the contracted salary amount.

With this basis, contributions are calculated on all pay the employee receives in the period. While there can be a few exclusions, the overall approach is much broader than basic pay. This means that salary, bonuses, overtime, and most other forms of earnings are included when working out your pension contributions.

Tier 2 is less common and a little more complex. It works in a similar way to total pay, but with some flexibility for the employer. The employer decides what counts as pensionable pay, as long as, at the end of the year, they can demonstrate to The Pensions Regulator (TPR) that contributions were calculated on at least 85% of the employee’s total earnings.

This basis is often used for automatic enrolment. It calculates contributions on a band of earnings between the lower and upper thresholds set by the government each year. This means not all of the employee's pay is pensionable, only the slice that falls within these limits.