Posted on: 29 Jun, 16
A guide to staying compliant with auto-enrolment.
Auto-enrolling employees into a workplace pension scheme is a legal requirement for all businesses, from those employing hundreds to those with 1 or 2 people on the payroll.
Over 6 million workers have been enrolled since 2012, with a further 1.8 million due over the next 2 years as the process turns to smaller employers.
The Pensions Regulator has warned that while the majority of companies are complying with the process, a rise in non-compliance is expected from smaller employers who have not prepared properly.
So far 2016 has matched these expectations with 806 fixed penalty notices (bringing the total since 2012 to 2,234) and 96 escalating penalty notices (making the total 127) being issued in the first quarter.
Non-compliance with auto-enrolment can lead to daily fines of up to £10,000 for businesses with 500 or more employees. So it is important that all businesses know exactly what is required of them.
Auto-enrolment applies to your business if you employ anyone with annual earnings of over £10,000 that is aged over 22 and normally works in the UK.
Businesses with these kinds of employees must then:
While it is possible to view auto-enrolment as a logistical burden with potentially dire financial consequences for non-compliance, it is equally possible to view it as an important step in ensuring that employees have the opportunity to save for retirement.
We can help you with the auto-enrolment process.
Both the employer and employee contribute to workplace pension scheme, and there is a legal minimum contribution level.
Contributions are calculatedusing qualifying earnings which for 2016/17 are those between £5,824 and £43,000. This means that the first £5,824 is not included in the calculation of an employee’s contributions and sets an upper limit on qualifying earnings of £37,176 (£43,000 minus £5,824) for 2016/17.
An individual’s salary, overtime, bonuses, commission, statutory sick pay, other statutory pay (such as maternity and adoption pay) are all included when calculating qualifying earnings.
The current minimum contribution levels are:
These levels are set until 6 April 2018, when they will increase to the following levels until 6 April 2019:
The contributions are due to rise again from 6 April 2019 bringing the total contribution to 8%.
Individual employees can choose whether they want to be part of the pension scheme you have chosen.
There are a number of rules that determine which workers are allowed to opt in and the circumstances under which they can do so if they are not automatically eligible.
An employee has the right to not participate in a workplace pension scheme if they have already been enrolled or opted in.
The opting out process consists of the following steps:
There is also a legal requirement for employers to keep records of all opt outs for 4 years.
Every 3 years an employer is required to essentially repeat the initial process of evaluating employee eligibility (including those that have opted out) and enrolling the relevant people (unless they choose to opt out).
All employees, even those who do not qualify for auto-enrolment, should be given as much information as possible so that they can make an informed decision about what is best for them.
We can advise you on how to stay compliant.
The penalties levied on companies who fail to comply with their auto-enrolment obligations come in 3 stages:
The daily penalties relate to the number of employees the business has.
Number of employees
With the penalties for non-compliance potentially having a large financial impact on employers, it is important to understand the pitfalls.
Among the most common mistakes that a small business might make with regards to auto-enrolment are:
With these common mistakes in mind, here is auto-enrolment broken down into manageable steps:
Get your staging date– you need to use your 1 April 2012 payroll information on The Pension Regulator website.
6 months before your staging date
Choose your pension scheme or check if your current one is suitable for auto-enrolment.
On your staging date
Assess your workforce– who is eligible for auto-enrolment?
Enrol those who have not opted out.
Within 6 weeks after your staging date
Communicate the changes – your employees need to be made aware of the changes to their pay and the scheme you are using.
Within 5 months afteryour staging date
Complete a declaration of compliance – this must be sent to the regulator and records keeping initiated.
Auto-enrolment can look like an intimidating mountain to climb for smaller businesses, but we can help you get the best out of the process 1 step at a time.
We can help you with successfully implementing auto-enrolment.
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