In the second of our auto enrolment newsletters we are going to look at the terminology of auto enrolment and also some of the key facts. As an employer it is important that you understand your obligations, as ultimately it is you that is required to make sure that you meet them. Although you may enlist the help of a 3rd party (such as ourselves) in order to help you ensure you comply, ultimately the buck stops with you.
What is a staging date?
This refers to the date when legal duties come into effect requiring an employer to enrol some or all of their workers into a qualifying pension scheme. Generally, the employer’s staging date has been determined by their number of employees and their PAYE area. Larger employers have already been going through the staging process. Employers will receive a letter from the Pensions Regulator 12 months before their staging date and follow up communications as their staging date draws nearer. If you want to find out what your staging date is, you can go to the Pension Regulator website and enter your PAYE reference. Alternatively, if we are running your payroll, give us a call and we can tell you.
When should I start planning?
As soon as possible! Next year is a big year for auto enrolment and the number of companies hitting their staging date is set to increase dramatically. As the numbers of employers going through staging starts to grow, pension providers may struggle to accommodate them at very short notice. It is possible to get a pension scheme set up in advance of your staging date, so it is worth starting to think about it as early as possible.
What contributions does an employer have to pay?
The minimum is 1% of an employee’s basic pay. This will rise to 2% from October 2017 and 3% from October 2018. An employer can choose to make a higher contribution should they wish to.
Can I vary the contributions for groups of employees?
Yes. For instance you may decide to make a higher employer contribution to management staff. However, the minimum must be met for all staff groups.
Can I use salary exchange?
Auto enrolment allows for salary exchange and HMRC guidance has been amended to enable flexibility around pension contributions.
It is possible to introduce salary exchange at the same time as auto enrolment, but the employer will need to make sure that their communications are effective, as salary exchange must be notified to employees prior to them being enrolled in a pension scheme. It is also important to plan ahead as the introduction of salary exchange can be a lengthy process with possible amendments to the payroll.
What definition of salary should be used when calculating contributions?
This is entirely up to the employer, provided they comply with the minimum requirements; either basic pay, total earnings or banded earnings if using the minimum qualifying earnings basis. These are defined as follows:
Basic pay – gross earnings disregarding the gross amount of commissions, bonuses, overtime, shift premiums or similar payments.
Total earnings – the total pay due for a pay period before any deductions.
Banded earnings – between the statutory minimum and maximum limits as set out by the auto enrolment legislation.
Depending on the pension scheme provider which you use, there may be limited ability to select the pay definition which you want to use. For instance, Now:Pensions have 5 structures. The payment definition for each is shown below:
I have heard that there are different categories of employees. Is this true?
Yes, the regulations require that employees are sorted into 3 groups:
Non eligible employee
Each group has different entitlements with regards to the pension scheme.
What are my responsibilities as an employer to each group of workers?
Eligible employee – must be automatically enrolled into a qualifying scheme, with minimum employee and employer contributions.
Non eligible employee – Non-eligible jobholders do not have to be automatically enrolled, but must have the option of opting into a qualifying scheme with the same employee
and employer contributions.
Entitled employee – Entitled workers do not have to be automatically enrolled but they have a right to be given access to a pension scheme. However, no employer contributions need be made.
I’ve heard postponement being mentioned. Does that mean I can delay the implementation of the scheme?
Yes and no. Postponement allows an employer to postpone auto enrolment for up to three months. However, if an employee decides to opt in then you will still need to pay their contributions, even during the postponement period.
How often do I need to assess my workers?
The short answer is every payroll cycle. Eligible job holders do not need to be re-assessed if they are already members of the scheme. If they have opted out they will be re-assessed after 3 years and will automatically be opted back in if they are eligible on the re-assessment date.
For other workers, their eligibility may change based on increased earnings or change in age. Also, if you have new employees these will also need to be assessed.
How will I assess my employees?
There are a couple of ways this can be done. You can use a middleware option which will receive a file from your payroll package. This will undertake the assessment and then tell you which employees have pension contributions due and you will amend the payroll accordingly. Alternatively, the main payroll software providers have developed their own assessment add-ons to the software. Iris, which we use for our payroll has this function and so does Sage. At present, we are not aware of Xero payroll having this function.
If you run your own payroll you should talk to your payroll provider now to find out what assessment capability they have. Also, be aware that even if your payroll software has an assessment capability, you may still end up having to deal with all the queries coming back from employees.
If we are running your payroll, we will be offering the option of dealing with the employee assessment. As part of our auto enrolment offering we will be aiming to minimise the amount of time you need to spend as an employer on compliance issues.
What should I do now?
Gather email addresses for all employees. This will enable communications to be issued in a cost effective and efficient manner. If you want us to deal with your auto enrolment assessment this will be a must.
Think about which payments you want to be included for auto enrolment assessment.
Think about who will be the co-ordinator within your business. Even if we are providing payroll and auto enrolment services to you, there will still be some preparatory work for you to do. If you are running your own payroll then you will need to think about how your payroll software will interface with the chosen pension scheme. There is likely to be an additional cost for your payroll software interface and also some additional training costs. We may be able to help, so give us a call if you want to find out more about what we can offer.
Remember, we’re here to help.
Neil, Chris and Katrin