Auto Enrolment was introduced on the back of the independent Pensions Commission recommendation. Research indicated that people are living longer and not saving enough to provide adequate income in retirement.
All UK employers are now required to automatically enrol their staff into a workplace pension if they meet certain criteria. Every employer must comply by law; and failure to do so could result in penalties of up to £10,000 per day.
Auto Enrolment is currently being phased in based on the number of employees. The largest staged on 1st October 2012 and the final staging date will be 1st February 2018.
Click the areas below to learn more about Auto Enrolment, how it will affect your business and how our managed service can help:
Staging Date
The staging date of your business is determined by the number of employees on your payroll as at 1st April 2012 for companies that are part of a group structure, the group should be considered to ensure the correct staging date is applied.
The Pensions Regulator (TPR) should write to confirm this date at least twelve months before you are due to stage.
Any companies formed after 1st April 2012 will have the staging dates set out below:
| PAYE First Payable Between: | Staging Date: |
|---|---|
| 1st April 2012 - 31 March 2013 | 1 May 2017 |
| 1st April 2013 - 31 March 2014 | 1 July 2017 |
| 1st April 2014 - 31 March 2015 | 1 August 2017 |
| 1 April 2015 - 31 December 2015 | 1 October 2017 |
| 1 January 2016 - 30 September2016 | 1 November 2017 |
| 1 October 2016 - 30 June 2017 | 1 January 2018 |
| 1 July 2017 - 30 September2017 | 1 February 2018 |
As a business you can bring forward your staging date to align with other key financial dates within your calendar year.
If you elect to do so you must inform the Pensions Regulator.
Postponement
You can postpone Auto Enrolment for up to three months from your staging date.
This does not amend your staging date, simply the initial assessment of your workforce.
An employee can request to opt in during this period so you must be ready at your staging date.
Our outsourced payroll solution can help you prepare in time.
Contact usTo find out your staging date click here, or contact us.
Assessment of Workers
An employer must assess each member of their workforce to identify into which category of worker they fall. This is to determine which duties the employer will have to carry out for that worker.
Qualifying earnings
Are used to identify what category each worker is classified as:
Category of workers
There are three categories of workers:
Eligible Jobholder
Will be automatically enrolled into their employer`s pension scheme.
Non-Eligible jobholder
Will not be automatically enrolled but may ask to opt in. If they decide to opt in the employer must contribute.
Entitled Worker
Will not be automatically enrolled but may ask to join. The employer does not have to contribute but can do so if they wish.
What Effect Does This Have on Your Business?
Planning for Auto Enrolment is essential. There are four contribution methods to choose from, of which the pension calculations are based upon:
1. Qualifying Earnings
Earnings between set bandings are used to calculate the contributions.
2014/15 bandings:
- Lower Band - £5,772 per annum
- Upper Band - £41,865 per annum
The contribution levels may be phased in:
| When | Employer | Employee | Total |
|---|---|---|---|
| Your staging date - September 2017 | 1% | 1% | 2% |
| October 2017 - September2018 | 2% | 3% | 5% |
| From October 2018 | 3% | 5% | 8% |
Employers can choose an alternative to the qualifying earnings method by certifying their scheme with respect to one of the following three requirements.
2. 7% Certification
A total minimum contribution of 7% of earnings (at least 3% of which must be the employer's contribution) provided that all earnings are pensionable.
| When | Employer | Employee | Total |
|---|---|---|---|
| Your staging date - September2017 | 1% | 1% | 2% |
| October 2017 - September2018 | 2% | 3% | 5% |
| From October 2018 | 3% | 4% | 7% |
3. 8% Certification
A total minimum contribution of at least 8% of pensionable pay (at least 3% of which must be the employer's contribution), provided that the pensionable pay contributes to 85% of earnings (the ratio of pensionable pay to earnings can be calculated as an average at scheme level).
| When | Employer | Employee | Total |
|---|---|---|---|
| Your staging date - September 2017 | 1% | 1% | 2% |
| October 2017 - September2018 | 2% | 3% | 5% |
| From October 2018 | 3% | 5% | 8% |
4. 9% Certification
A total minimum contribution of at least 9% of pensionable pay (at least 4% of which must be the employers contribution)
Pensionable pay must be at least the equivalent of basic pay.
| When | Employer | Employee | Total |
|---|---|---|---|
| Your staging date - September 2017 | 1% | 1% | 2% |
| October 2017 - September2018 | 3% | 3% | 6% |
| From October 2018 | 4% | 5% | 9% |
Comparison (using 2014/15 bands)
The chart below illustrates the above models for an employee earning:
- £20,000 Basic
- £2,000 Overtime
- £6,000 Car Allowance
- £4,000 Bonus
Using the current bandings and taking into consideration the 20% contribution from the government in the form of tax relief:
Model 3 not applicable on this example, for illustration purposes only.
Our outsourced payroll solution can guide you through the auto-enrolment process and help you choose a plan that will benefit your business and your employees.
Contact usCommunicating With Employees.
At certain stages within the Auto Enrolment process your business will need to communicate with your workers.
So when does this start?
Non-Statutory communication
Making your employees aware...The first stage is to raise awareness within your business. Help your workers understand what Auto Enrolment is and what this means to them.
Providing posters around the workplace or a footnote on their payslip is a great way to achieve this.
For samples of marketing material visit the NEST website.
Statutory communication
The Pensions Regulator's legislation requires certain information to be included in the statutory communications sent to workers.
Some examples of when this type of letter should be used are :
- Postponement - Workers should be notified if the company decides to postpone their assessment and what their options are.
- Staging date - Workers should be informed if they have been automatically enrolled. This must be sent within six weeks of the Auto Enrolment date.
As a business you will also have to communicate with your chosen pension provider. How much you report is dependent on how much they are doing for you.
We can provide communication letters for your workers and act as a delegate on your behalf with your chosen pension provider.
Contact usChoosing Your Software
You may already have a payroll and/or HR package in place that handles your current payroll needs however, not all payroll software is setup to handle Auto Enrolment. Some may only offer a small part of the Auto Enrolment process leaving you to find another solution to process the remainder.
The key requirements for Auto Enrolment are:
- Setting up a qualifying pension scheme.
- Assessing your workforce.
- Automatically enrolling eligible jobholders.
- Communicating with employees.
- Calculating and deducting pension contributions for both employee and employer.
- Managing opt ins , opt outs and ongoing assessments.
- Uploading and downloading of information to your pension provider.
- Record keeping for six years.
- Declaration of compliance.
If you prefer to run your own payroll and Auto Enrolment process, our IT services can support and advise you on Auto Enrolment compliant software and software integrations.
Please contact us for more details.
Declaration of compliance
Employers have five months from their staging date to complete their declaration and inform the Pensions Regulator what they have done to comply with the Auto Enrolment duties.
This is to state that procedures have been followed and to provide details of the pension scheme chosen. They also ask for a total number of employees within each category.
Our outsourced payroll solution can guide you through this process.
Contact us