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Employees over 22 years old get a pay rise! By taking a pay cut?

Employees over 22 years old get a pay rise! By taking a pay cut?

Tomorrow, and again April 2019, sees employees over the age of 22 years old get a pay rise. BUT you won’t see it on your next pay slip. In fact, you will likely see a reduction in your net pay. Instead it has been tucked away in your pension.

This is because of auto-enrolment, the scheme which says companies must opt-in their employees (who are over 22 years old and earn at least £10,000 a year) to pay towards a private pension. This is essentially a government mandated savings scheme to provide money for you later in life on top of state pension (whilst signaling the government believes the state pension will not be sufficient to live on when you retire).

For the tax year 2017/18 you contributed 1% of your wage to the scheme with a matched 1% from your employer.

From today, the new tax year, the amount both you and your employer must contribute to the scheme increases from 1% to 2% for the employer and from 1% to 3% for the employee. As this is taken from your pre-tax salary this is less than it seems!

So everyone receives a pay increase but takes home less immediately useable money. This may not suit you if you are dealing with financial hardship and it is possible to opt out.

By opting out it could be viewed as sacrificing short-term gain for long-term pain, but everybody’s circumstances are different. (It can also make sense to opt out if you’ve expensive, ie high interest, debt that you will pay off. But let’s be honest how much of the extra cash in your payslip will go towards paying down the debt? It’s important to know whether you can make this work.)

So that’s the good news and the bad news. More money!! Just not yet.

Be aware that in April 2019 the employee contribution will jump further to 5% and the employer will contribute 3%.

If you are an employee or employer needing help with employment contracts, auto-enrolment or any other employment matter, please don’t hesitate to contact us.

Nothing on this site should ever be considered to be legal advice or research but if you do wish to receive advice on any of the content discussed please contact us on 028 3752 5400 and we will be happy to help you. Please note that whilst we will aim to provide accurate information the world changes at a fast pace so always follow up with your solicitor to ensure you are fully up to date with same. For complete Terms and Conditions please see the relevant section of our website.

JJTCO

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