Automatic enrolment: what you need to know as an employer

By 700c Tuesday, August 23, 2016

Confused about automatic enrolment, and how it will affect you and your cycle shop? Here’s what you need to know as an employer.

What is automatic enrolment, and does it apply to me?

If your shop employs one or more people, then automatic enrolment will probably apply to you.

Every employer is required by law to enrol certain workers into a suitable workplace pension scheme and contribute towards it – typically this will mean employees between 22 and state pension age, who earn over £10,000 a year. This is called ‘automatic enrolment’.

When do I need to be ready?

It depends – by now you should have been given a ‘staging date’ and you must have your pension scheme in place by this date. You can check your staging date here.

If you don’t comply you can face a range of fines, starting with a fixed penalty of £400 and escalating to fines of at least £50 per day for non-compliance. Even If you already operate a pension scheme, you need to check it meets the qualifying criteria.

When should I start planning?

You should start getting ready six months ahead of your staging date – that way you’ll have enough time to make all the necessary decisions and get everything in place.

What do we need to do?

By your staging date you need to:

  • decide what contribution rates you’ll use and whether these will be the same for all workers;
  • review any existing workplace pension arrangements you have;
  • establish a workplace pension scheme that meets the automatic enrolment requirements;
  • decide what, if any, postponement rules you will apply; and
  • ensure you have processes in place to deal with both your initial and ongoing employer duties.

How much do I have to contribute?

There are two key decisions you need to make before your staging date:

  1. What will be my chosen definition of pensionable salary?
  2. What contribution rates will apply and will it be the same for all workers?

The most widely used contribution model is based on qualifying earnings. Generally, total contributions for eligible jobholders must meet a minimum of 8% of qualifying earnings (also known as the relevant quality requirements or RQR) by October 2018.

Qualifying earnings include salary, wages, commission, bonuses, overtime, statutory sick pay and statutory maternity, paternity and adoption pay, that fall into a band of earnings between £5,824 and £42,385 per year.

Employers must eventually pay a minimum of 3% of qualifying earnings into a suitable workplace pension scheme.

For example:

An employer would be required to pay £10.44 per month (£125.28 per annum) for an eligible jobholder with total annual earnings of £10,000:

  • £10,000 - £5,824 = £4,176
  • £4,176 x 3% = £125.28 employer pension contribution

How do I choose the right pension supplier?

On the Information for Employers section of their website, The Pensions Regulator states that:

“You must select a pension scheme which meets certain legal requirements. These include, for example, that the scheme does not require the worker’s consent to join, it allows workers to join from their first day of employment, it is tax registered in the UK and it allows for the minimum legal contributions from employers and workers.”

“You should also choose a good quality pension scheme that is well run, offers value for money and protects your workers’ retirement savings. Selecting a good quality pension scheme is not a difficult process and, from your perspective, it doesn’t have to cost more than a scheme which is of a lesser quality.”

What are the requirements in terms of communicating with staff?

You need to make sure staff are aware of the changes, and how it will affect them. In fact, there are certain statutory communications you need to issue to workers from your staging date. These should be managed as part of your ongoing compliance process.

Every different worker type will need to be sent a communication following their first assessment. If after the first assessment (i.e. in the pay period) there have been no changes to the worker profile and type on your payroll, there may be no new actions required.

If you take on any new workers you’ll need to assess them the first time they appear on your payroll. You also need to monitor workers on an ongoing basis as either of the following may trigger a change in worker category:

  • A worker’s earnings increase and their worker category changes.
  • A worker turns 22.

Also, every three years (from your staging date), you’ll need to re-enrol any workers who meet the eligible jobholder worker type – these workers may have opted out or ceased active membership of the scheme.

You might want to tell staff about automatic enrolment and the decisions you’ve made ahead of your staging date. This will give your workers the opportunity to understand what automatic enrolment means and how it may affect them.

How can I find out more?

700c is a trading name of Lucas Fettes & Partners Limited, and one of our sister brands is Easy as AE – you can find lots of helpful information on the Easy as AE website.


700c is a trading name of Lucas Fettes & Partners Limited. Easy as AE is a trading name of Lucas Fettes & Partners (Financial Services) Limited, independent and restricted financial advisers authorised and regulated by the Financial Conduct Authority.

 

 

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