Running payroll for a contracted-out pension scheme
Make sure any employees you have in a contracted-out pension scheme pay the lower rate of National Insurance they’re entitled to.
You’ll also pay a lower rate of employer’s National Insurance for every employee in the scheme.
If you run a contracted-out scheme you’ll have been given a certificate by HM Revenue and Customs’ (HMRC) Pension Scheme Services.
Running your payroll
Enter your Employer Contracting Out Number (ECON) and Scheme Contracting Out Number (SCON) in your Full Payment Submission (FPS) each time you run your payroll.
Get these from your pension scheme administrator. They’re also on your certificate from HMRC.
If an employee joins your scheme
Change their National Insurance category letter - usually to ‘D’. This is used to work out their National Insurance whenever you pay them.
The rules for calculating National Insurance are different if the employee is a director.
If an employee leaves your scheme
Change their National Insurance category letter - usually to ‘A’. This is used to work out their National Insurance whenever you pay them.
Carry on reporting year-to-date information under the old category letter until the end of the tax year.
If an employee stops working for you
If you pay them within 6 weeks of leaving (eg outstanding salary or bonus), work out their National Insurance as if they’re still in your scheme. Keep using the same category letter.
After that, treat them in the same way as an employee who’s left your scheme.
You need to tell HMRC when an employee stops working for you.