Employer Duties For Auto Enrolment – Workplace Pensions
Employer Duties for Auto Enrolment – WHY?
The Government introduced auto enrolment to get more people saving for their future. The new employer duties were introduced over 6 years, starting with the UK’s largest companies from October 2012.
As an employer, you will have new duties in relation to everyone working for you who are aged between 16 and 74; who works in the UK and for whom you deduct tax and NIC from their wages. Most employers will have to choose and contribute to a workplace pension scheme suitable for auto enrolment which must meet quality standards. Employers will have to auto enrol some workers into a workplace pension scheme and give others the option to join. The employer duties are not optional. The Pensions Regulator (TPR) will ensure employers comply or face hefty fines or even imprisonment!
Employers duties were introduced in stages from October 2012. All new employers duties start date is from the date the first employee starts.
Employers must assess their workforce to determine whether they’re to be treated as a ‘worker’. Initially this assessment is required on the start date, but your duties don’t just stop once you’ve enrolled all your staff – they become part of your business as usual. You must assess your workforce regularly before each payroll run in order to assess all new joiners or a change of worker category. Workers fall into 3 categories:
Eligible jobholder: Aged between 22 and state pension age – Annual earnings from £10,000 Must auto enrol.
Non-eligible jobholder: Aged between 16 and 75 Annual earnings above £6240 – Has a right to opt-in to auto enrolment and employers must contribute
Entitled worker: Aged between 16 and 75 Annual earnings less than £6240 – Has a right to join auto enrolment but employers do not have to contribute
Employers must choose their own Pension Provider. They have to be authorised by the Government. Examples of approved auto enrolment pension providers are NEST, NOW Pensions, Aviva, Royal London, Smart Pension, Scottish Widows, Peoples Pension, Aegon, Creative Pension Trust, Standard Life, True Potential, Legal & General, Salvus, & BCF. See our auto enrolment pricing page for a list of currently acceptable auto enrolment providers.
Highland Payroll Services can help guide you through your employer duties for auto enrolment. For our pricing click here. Please contact us to discuss.
Below is a brief overview of what the employer duties for auto enrolment are and what they have to do:-
- Auto enrol certain workers into a pension scheme.
- Make contributions on their workers behalf.
- Register with The Pension Regulator.
- Provide workers with certain information about the changes and how they will affect them.
- Managing Opt Outs.
You need to identify which workers need to be auto enrolled. These are called ‘eligible jobholders.
An eligible jobholder is:-
- Aged between 22 and state pension age.
- Working or ordinarily working in the UK.
- Earning above a certain amount – £10,000 (this will change each year).
All employers will have to register with the regulator who have one or more employee’s.
The rules of the scheme must require the employer to pay an overall minimum contribution of at least 8% of the worker’s qualifying earnings, of which at least 3% of this contribution must be from the employer. In most cases, Government tax relief will account for 1% of the total 8%. At present it is 5% for employee and 3% for employer as a minimum.
Employers who already have a pension scheme can confirm that it is suitable for auto enrolment by a process called ‘certification’.
Workers who have been auto enrolled have the right to opt out of the employer’s pension scheme. There is an opt out period of 1 month, where any deductions made from their salary will be refunded. Equally, any contributions the employer has made must be refunded to the employer by the pension scheme.
The worker can choose to cease membership at any time, although they may not be entitled to a cash refund of contributions after the end of the 1-month opt-out period. To opt out, workers must give notice via a document called an ‘opt-out notice’ to the employer. These notices will be available from the pension scheme provider.
Some workers are entitled to ‘opt in’ but there is no requirement on the employer to make employer contributions in respect of these workers although the employer must set the deduction of the worker’s contributions from pay.
An employer must be able to keep track of the ages & earnings of everyone who works for them at all times.
They will also have to keep records about their workers and the pension scheme used to comply with their duties.
If an individual is a Director of a company and the company has no other employees, that individual is not a worker by virtue of any office that they hold or contract of employment under which they work.
However, if the company takes a second worker and both the director and employee work under a contract of employment the both will be workers for the purposes of the employer duties.
Managing Opt Outs
If an employee opts out the employer has to automatically re enrol them every three years if they are still an eligible jobholder working for that employer.
If an eligible jobholder is already an active member of a qualifying scheme on their auto enrolment date, the employer does not have to take any further action, other than to provide them with information about the scheme of which they are a member.
If a non eligible jobholder chooses to opt in to a pension scheme, they must do so by giving the employer an ‘opt-in notice’ The employer will have to pay employer contributions to the scheme.
Entitled workers do not need to be auto enrolled. If the entitled worker chooses to join a pension scheme they must do so by giving the employer a ‘joining notice’. The employer must then arrange membership of a scheme for them. The employer will have to deduct contributions on behalf of the entitled worker and pay these in to the scheme. However the employer does not have to pay in the scheme themselves, unless they choose to do so.
You can defer (postponement) paying Pensions as long as procedures are adhered to (up to three months). You have to notify the employee within 6 weeks that you are deferring Pensions.
What happens if I don’t comply?
If you fail to comply with your employer duties for auto enrolment by the declaration of compliance date, The Pensions Regulator (TPR) may take enforcement action and issue a notice and/or a penalty. There are a number of different enforcement options that The Pensions Regulator can use. This includes informal action such as offering guidance, by telephone, email or in person. It also includes fixed penalty fines of £400 onto daily fines from £50 to £10,000 depending on the number of staff you have. Employers who deliberately and wilfully fail to comply with their employer duties may be prosecuted.