In the menu options on the left of the screen go to Employees, Deductions, and click ‘New Deduction’. You should enter the details required in the fields on the screen and in particular you will normally tick the ‘Apply to Gross Pay?’ box. You will also need to tick either ‘Occupational Pension Scheme?’ or ‘Personal Pension Scheme?’ and the difference is explained as follows:

Occupational Pension Scheme: old style ‘company’ type pension schemes often require that the tax relief is given through the payroll so the employee gross pay for tax is reduced for the pension contribution before tax is calculated;

Personal Pension Scheme: NEST and most modern ‘personal’ type pension schemes are RAS based (Relief at Source) where the scheme provider claims back basic rate tax on the employee contributions, and the employee is therefore taxed on the gross pay less other allowances, but with no allowance for the pension deduction.

You will then need to set up a Period with start and end date range for which this deduction will apply, and within that a band, or bands, of earnings to which the deduction will apply (the band ranges should not overlap) each with it’s own employee (‘%Deduct’) and employer (‘%Oncost’) contribution rates. The NEST scheme in particular has a statutory minimum and maximum ‘Qualifying Earnings’ band, but your particular scheme may exceed this statutory requirement.

Finally, if yours is a Personal Pension Scheme where the scheme provider claims back basic rate tax on the employee contributions then you will need to reduce the employee contribution rate by the basic tax rate so for example where both employee and employer contribution is 1% the employee contribution will be discounted by the basic tax rate (currently 20%) and entered as 0.8%; the employer contribution is unaffected and will be entered as 1%. Generally employees over 75 years old or who are not resident in the UK will not be entitled to tax relief so you will need to set up a separate deduction for these where you do not discount the employee contribution.

Once this is done click ‘Create’ to create the deduction; you can now select this deduction on any employee record to which the deduction should apply.

If in doubt please consult your scheme provider before setting up the deduction, and we would recommend that you always confirm with your pension scheme provider before starting to make deductions from employee pay.