Pay reference period

These FAQs are for financial advisers only. They mustn’t be distributed to, or relied on by, customers. They are based on our understanding of legislation at the date of publication.

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Legislation uses ‘pay reference period’ for two different purposes: 

  • for measuring a worker’s earnings to determine which category they are in and accordingly what duties an employer has in relation to them, and 
  • for determining whether the quality requirement is met in relation to a jobholder (i.e. for a money purchase scheme calculating the minimum contribution level for each jobholder).

Since 1 November 2013, the pay reference period, for the purpose of assessing a worker’s earnings to determine their category (eligible jobholder, non-eligible jobholder or entitled worker), can be either aligned to: 

1. the period over which the worker is paid their regular wage or salary, or 

2. tax weeks or months.

Employers can choose the definition that suits them best, as long as the scheme provider offers the choice. There is nothing to stop an employer using one definition for one group of workers and the other definition for another.  

1. The period over which the worker is paid their regular wage or salary 

This is where a worker’s pay reference period is the period by reference to which the worker is paid their regular wage or salary. If a worker is paid weekly, the pay reference period lasts for one week. If they are paid by reference to a period longer than a week (for example, monthly), the pay reference period lasts for that longer period. Note that someone who is paid more frequently than weekly is excluded from assessment under this definition.

When assessing the worker’s qualifying earnings to determine their category, the employer will need to identify the relevant pay reference period – this is the pay reference period in which the assessment date falls.

Once they know the relevant pay reference period, earnings that are payable (not necessarily earned) in that pay reference period are used in determining whether the worker is a jobholder (having earnings above the minimum qualifying earnings limit of £5,824*), or an eligible jobholder (having earnings above the automatic enrolment trigger of £10,000*).

*2016/17 figures

2. Tax weeks or months

Employers can align pay reference periods to tax periods (providing their scheme provider is willing to administer the scheme on this basis). 

Under this definition, the length of a pay reference period is the period over which a worker is usually paid their normal regular wages or salary or one week, whichever is longer. (This means that under this definition, someone who is paid more frequently than weekly will be included for assessment purposes). Once the employer determines the length of the pay reference period, it will be aligned with the relevant tax period. For example:

Interval between normal payments of wages/salary Pay reference period 
One week Pay reference period is a week, beginning on the first day of the tax week. The first pay reference period in the tax year starts on 6 April
Four week

Pay reference period runs for 4 weeks. The first pay reference period in a tax year starts on 6 April

Monthly Pay reference period aligns with a monthly cycle starting on 6 April
Multiple of weeks or months The pay reference periods align with a cycle starting on 6 April

A breakdown of tax weeks and months can be found here(Opens new window). Special rules apply for a pay reference period that spans the end of the tax year.

Example:

Sam is paid on 25th of July for work done during the whole of the month. The length of his pay reference period is one month. It starts on the 6 July 2014 and ends on 5 August 2014.

The relevant pay reference period is the one in which the assessment date falls. So in the above example, if Sam’s assessment date is 1 August 2014, the relevant pay reference period will be the one that runs from 6 July to 5 August 2014.

For a defined contribution scheme to be a qualifying scheme or an auto-enrolment scheme, the quality test requirements must be met. These include:

  • the employer must make contributions in respect of the jobholder
  • the total minimum contribution must be at least 8% (after phasing) of the jobholder’s qualifying earnings in the relevant pay reference period
  • the minimum employer’s contribution must be at least 3% (after phasing) of the jobholder’s qualifying earnings in the relevant pay reference period

The relevant pay reference period used here is different from that used to assess the workforce.

Since 1 November 2013, the pay reference period for the purposes of the quality test can be defined in one of three ways:

Definition 1:

The pay reference period is a 12-month period starting on the staging date and ending 12 months later. Subsequent pay reference periods begin on the anniversary of the employer’s staging date and run for 12 months. It’s possible for the pay reference period to be shorter than 12 months, if for example, a jobholder is auto-enrolled part way through a pay reference period, or leaves employment before the end of a pay reference period.

Under this definition, a part-payment calculation of the first contribution may be required. For example, if the relevant pay reference period runs from the 1st to the 31st of December, and a jobholder is enrolled on 17th of December, the first contribution will be based on earnings between 17th and 31st December.

Definition 2*:

Where the pay reference period is based on actual pay periods

This definition sets the pay reference period as a period equal in length to the interval between the usual payments of a jobholder’s wages or salary. So if a jobholder is paid monthly, the pay reference period is one month.

Definition 3*: 

Where the pay reference period is aligned with tax periods

The pay reference period is equal in length to the usual period over which the normal wage or salary is paid and then it’s aligned with the relevant tax period. For example:

Interval between normal payments of wages/salary Pay reference period
One week Pay reference period is a week, beginning on the first day of the tax week. The first pay reference period in the tax year starts on 6 April
Four weekly Pay reference period runs for 4 weeks. The first pay reference period in a tax year starts on 6 April
Monthly Pay reference period aligns with a monthly cycle starting on 6 April
Multiple of weeks or months Pay reference period aligns with a monthly cycle starting on 6 April

If there is not a usual interval between the normal payments of wages/salary or the usual interval is less than a week, then the employer cannot use this definition of pay reference period.

A breakdown of tax weeks and months can be found here. Special rules apply for a pay reference period that spans the end of the tax year.

Example 1:

If Jack is paid monthly on the 20th of the month for the work done in that calendar month, his pay reference period will run for one month, from 6th of the month to the 5th of the following month.

If Linda is paid quarterly, her pay reference period will run for 3 months and will begin on 6th April, 6th July, 6th October or 6th January, whichever is relevant.

First relevant pay reference period:

* In definitions 2 and 3 above, the first relevant pay reference period is the first full pay reference period starting on or after the date the worker is both a jobholder and an active member of a qualifying scheme.

This means that employers who use either of these definitions of pay reference period don’t need to deal with calculating part contributions in the first pay reference period.

Example 2:

An employer’s staging date is 1 January 2014, and Annie is auto-enrolled on this date. Her pay reference period for quality test purposes is aligned with tax months, so the first relevant pay reference period for Annie is 6th January 2014 – 5 February 2014. This is the first full pay reference period after she is a jobholder and an active member of the scheme.

Last pay reference period:

* In definitions 2 and  3 above, where a person ceases to be a jobholder of the employer or stops active membership of a qualifying scheme, the last pay reference period is the period in which that change happens. This means the final pay reference period is a full pay reference period, not a part period.

More information relating to pay reference period for the purpose of calculating the minimum contribution level can be found here. 

Where an employer is using pay reference periods that are aligned with the tax year for assessing the workforce, calculating minimum contributions or both, care should be taken at the end of the tax year.

Where a pay reference period includes 5th April, the next pay reference period starts on 6th April. This makes sure that pay reference periods continue to run in line with the tax year.

If the qualifying earnings for an individual for the pay reference period that includes the 5th April, aren’t paid until on or after 6th April, that pay reference period is ended early, on 5th April. This prevents the same earnings being taken into account in two different pay reference periods (and prevents two deductions of contributions from the same pay when using this definition of pay reference period for the purposes of minimum contribution entitlement).

Weekly pay reference periods or pay reference periods based on multiples of weeks or months could cross a tax year.

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