Is employer pension contribution in addition to salary or taken from salary?

Markeee

I understand that by law most employers have to contribute 3% of an employees pay in to a pension. Is this 3% in addition to the salary or taken from the salary?

I understand the empoyee (in most cases) also contributes 4% into a pension. I presume this automatically comes out of the salary?

The reason I ask is: the Joseph Rowntree Foundation says that "In order to reach a minimum socially acceptable living standard in 2020, a single person needs to earn £19,200 a year and a couple with two children each need to earn £18,700". So is this £19,200 minus 3% or plus 3% pension contribution. Or even £19,200 minus 7% or plus 7%?

I'm self-employed and trying to work out the minimum hourly rate I can charge, by taking the above rate (plus or minus pension contribution) and dividing it by the number of hours I expect to work.

Albermarle

An employer contribution comes from the employer , not from salary.
The legal minimum for employers is nowadays to contribute 3% and the employee 4% .
However this is less than what would be recommended to put in a pension on an annual basis , to get a decent retirement income . What this figure actually is depends on a few different factors , such as your salary, age etc .
But I would calculate on an absolute  minimum 10% pension contribution , preferably more.

penners324

Shouldn't you be basing your rate on your skills, experience and industry you work in?

To answer your question though;
Employee deduction from salary of 5% (current suggested minimum).
Employer contribution of 3% of salary (this is an additional cost to the employer).

Markeee

Albermarle said:

An employer contribution comes from the employer , not from salary.
The legal minimum for employers is nowadays to contribute 3% and the employee 4%

Thank you.

The Joseph Rowntree Foundation make no mention of pension contributions in their report. If the minumum socially acceptable earnings is £19,200, then I presume for a self-employed person (who has to pay into their own pension)  the minimum earnings is £19,200 plus 7% = £20,544?

Similiarly, if I use the UK median annual income of £31,500 as a benchmark for one of the tiers of my hourly rate, should this actually be £31,500 + 7%?

Markeee

penners324 said:

Shouldn't you be basing your rate on your skills, experience and industry you work in?

I have three rates. A high rate for larger clients who can afford it. A medium rate (pegged to the median annual income) for smaller organisations. A low rate (pegged to the JRF minimum earnings) for small charities, individuals and worthy causes with very little money. So in this way those who can afford it are subsidising those who can't.

Albermarle

To repeat 7 or 8% is a minimum . Some employers are more generous and some employees add more than themselves.

theoretica

penners324 said:

Shouldn't you be basing your rate on your skills, experience and industry you work in?

The self employed (or employed for that matter) need to have two calculations and make sure they meet - what the market will pay based on the industry but also your earning requirements to know that the job is realistic for you.

theoretica

As self employed you will also want to add in holiday pay and a bit of margin for sick days.

Markeee

So if the median income is reported to be £xxx – for the sake of my calculations – should I add a minimum of 8% to this?

And similiarly

If the minimum income is reported to be £yyy – for the sake of my calculations – should I add a minimum of 8% to this?

or has the pension contributions already been factored into these figures?

Albermarle

Probably what you could say is that a PAYE employee will get 
Annual salary + employers pension contribution of absolute minimum 3% ( I would add 5% at least ) + maybe  some small perks., life insurance , subsidised meals, free overalls etc ; 

Then you need to take into account three weeks holiday when you are not earning so add another 6% and then if you are off sick you do not get full pay , so better add another couple of per cent for that  + you have to pay for liability insurance etc . Then finally you have to make your own pension contributions 

So on top of the salary you could add at least 20% for a comparable self employed income, in my opinion .

theoretica

Delving into the full report it looks like £19200 is the headline salary - ie earnings before tax.  So this will not include the 3% employer's pension.