As an employer you have a whole ton of responsibilities to your staff – way beyond paying their wages! And if you’re a micro business, it’s very likely that you, as the founder, often find yourself wearing many hats, including that of HR!
Amongst your very many responsibilities and legal duties to your employees is that of automatic enrolment into a pension scheme. So in this article, we’re here to put all that into plain English so you know what you need to do when it comes to complying with auto enrolment. Let’s dive in.
Automatic Enrolment: What is it?
Under the Pensions Act 2008, all UK employers are required to enroll certain staff members into a workplace pension and contribute to it themselves. This system is known as Automatic Enrolment.
Auto enrollment is a legal obligation that employers must adhere to. It means that employers need to enroll eligible employees into the employer pension scheme. This duty starts from the moment the first member of staff is hired. It’s important to be aware that missing a deadline for enrollment could lead to penalties being issued.
What are my responsibilities as an employer?
Here’s a straightforward summary of the initial steps that employers need to take:
Choose your employer pension scheme: Select a scheme that will be used for eligible employees, and make sure it’s set up as soon as possible.
Identify eligible employees: Determine which employees should be enrolled in the employer pension scheme. This assessment should be done from the date each employee starts working, known as their duties start date. In some cases, a deferment may be possible based on the policies in place. Eligible employees are typically those aged 22 to State Pension Age, earning at least £10,000 per year before tax
Write to employees: Inform each staff member about automatic enrolment and how it affects them. The Pensions Regulator (TPR) website offers assistance with letter templates, and this communication should be completed within six weeks after each employee’s start date.
Complete your declaration of compliance submission: This is an electronic submission providing details about eligible employees. Make sure to submit it within five months after their duties start date.
Auto enrolment rules for employers need to be kept in mind throughout the year, especially regarding employees who have opted out of automatic enrolment. More guidance on this can be found later in this article.
Now, let’s explore the ongoing duties employers have in relation to auto-enrolment:
Identify enrollment eligibility: Continuously assess whether an employee needs to be enrolled in the pension scheme and go through the process for each new employee as they join
Inform employees about auto-enrolment: Keep employees informed about how auto-enrolment affects them and what steps they need to take.
Submit the necessary declarations of compliance: Ensure that the required submissions for enrolling employees are completed and submitted.
Make contribution payments: Regularly contribute the appropriate amount to the pension scheme according to each pay period.
Monitor earnings and ages: For employees who were not eligible for enrolment initially, keep track of their earning levels and ages for potential future enrolment. So, for example, if you have a part time employee earning under £10,000/year who is initially not eligible, their hours or pay may increase which then puts them into the eligibility bracket and they must then be processed too
Manage joiners and leavers: Handle requests from employees joining or leaving the pension scheme.
Maintain records: Keep accurate records of employees and the pension scheme for the statutory time periods.
Re-enrolment and re-declaration: For staff members who have opted out, ensure that they are re-enrolled as required, and complete the necessary re-declaration.
For further guidance on all these employer duties, you can visit the TPR website, where they offer more detailed information.
The starting point for employers is to determine who needs to be automatically enrolled, and this should begin from the employee’s duties date, which is the first day a new staff member starts working.
When do my duties in regard to auto enrolment begin?
The magic moment for auto-enrollment obligations is the first day an employee starts working for you. No matter if enrollment is required or not, it’s always a good idea to communicate with your employees about it.
Before October 2017, employers were given a staging date to ensure compliance with auto-enrollment obligations. The Pension Regulator used to send letters to employers, notifying them of their duties 12 months before the staging date. However, now the legal requirement kicks in right away, so it’s essential to seek advice or assistance early on to get things right. You can find our earlier guidance on the necessary steps to follow here.
If an employee is eligible for auto-enrollment, as an employer, you’ll need to consider their “qualifying earnings” to determine the contributions both you and the employee need to make. Qualifying earnings include various forms of pay, such as salary, overtime, bonuses, and statutory payments. Don’t worry; we’ve got a full breakdown of this later in the article.
For eligible employees, employers will have to calculate their contributions each pay period to ensure the correct amount goes into their pension pot.
To make things easier, The Pension Regulator provides a helpful table summarising the position, which you can find here. Depending on the employee’s category, it will impact auto-enrollment duties and the records you need to keep.
With all these legal obligations in play, it’s essential for employers to provide all the necessary information to employees in writing. This will not only confirm that you’re fulfilling your legal responsibilities but also ensure that the details supplied to the TPR are accurate.
So, keep your employees informed, stay on top of your duties, and remember that we’re here to guide you through this process smoothly!
How much does an employer have to contribute?
Once an employer has determined whether an individual qualifies as a ‘worker,’ they’ll need to enroll them in the pension scheme.
Employers will contribute a percentage of their employees’ ‘qualifying earnings’ into their pension pot each time they get paid. This contribution is made up of both the employee’s and employer’s share.
Now, you might be wondering, what exactly are these ‘qualifying earnings’? Well, they include various components such as salary, overtime, bonuses, commission, statutory sick pay, and statutory payments like maternity, paternity, and adoption.
As for the minimum contribution, employers must pay at least 3% of their employees’ qualifying earnings for each pay period. Of course, you can always choose to contribute more if you wish. On the other hand, employees are required to contribute a minimum of 5%. So, the overall minimum contribution each pay period is 8%.
However, if an individual doesn’t meet the criteria for automatic enrollment, they can opt in voluntarily. Employers cannot refuse their employees’ request to join the scheme. But, there’s a catch – employers won’t be obligated to contribute if the employee’s earnings fall below these amounts:
- £520 per month
- £120 per week
- £480 every 4 weeks
If you have seasonal or temporary staff members, you’ll need to assess their eligibility for auto-enrolment each pay period. I know this might sound like a laborious task, but don’t worry! Having the right payroll software can streamline the process and make it much more manageable.
Can your employees opt out of auto-enrolment?
In short, yes. They can absolutely opt out of auto enrolment.
If an employee decides to opt out within the first month after being auto-enrolled, any contributions made will be refunded to them. However, if they choose to opt out after the first month, the contributions will remain in their pension fund.
The good news is that employees can rejoin the pension scheme in the future if they wish to. But keep in mind, some employers might ask employees to complete this rejoining process once every 12 months, and they can do so by making a written request.
Now, let’s talk about re-enrolment. Employers are required to automatically re-enrol employees who are not in a pension every three years or sooner if they prefer. This process is called re-enrolment, and if it’s completed, the employer will need to inform the affected employee in writing.
For further guidance on employees opting out and re-joining, you can find more information here.
As for timeframes, employers have the option to defer employees’ enrolment in the workplace pension scheme by up to three months. This is known as postponement, and employers must follow the necessary guidelines to confirm this to their employees.
If you need more information on postponing auto-enrolment, you can find additional guidance here.
Remember, employee preferences matter, and providing flexibility while staying within the guidelines can foster a positive work environment.
What happens if an employer fails to meet their legal duties?
If employers happen to neglect their legal obligations, there could be some consequences. Initially, they might receive a friendly warning letter, reminding them of the need to comply with the pension regulations.
If the non-compliance persists, statutory notices may follow, confirming any missed payments and the amount to be paid.
To encourage compliance further, penalty notices can be issued, taking different forms like fixed penalties, escalating penalties, or even prohibited recruitment conduct penalties.
In rare cases of serious non-compliance, employers might face prosecution and potential criminal charges. But we’re sure nobody wants that!
So, the key is to ensure everyone is treated fairly, and employee pension rights are respected. It’s all about securing a happy and prosperous future for everyone involved!
How long should an employer keep data?
Finally, let’s talk about the crucial task of maintaining and securing payroll documentation for employers. It’s no joke – you definitely want to avoid those pesky penalties! And guess what? Even if you outsource your auto-enrolment duties to a third party, the responsibility remains with you.
Now, what kind of information should you have on file?
You will have to have some key pieces of data on file including things like their full names, national insurance numbers, contributions made, those qualifying earnings that make everyone happy, and, of course, those important opt-in notices.
And let’s not forget about your employer pension scheme! You’ll want to keep tabs on its name, the pension reference number that gives it an identity, and its registered address.
And how long should you hold onto all this important stuff? The rule of thumb is to keep information for at least six years. In some circumstances or for some information, it drops to four years, four years. For instance, you can happily say goodbye to opt-out notices after four years.
Resources
You can find loads of really helpful resources for managing auto-enrolment in your business on the Pension Regulator’s Employer Website.
