If you're a new employer, you may well be wondering what the position is regarding providing a pension for your employees. The answer is that you're now legally obliged to provide a pension scheme, and make contributions towards your eligible employees' pension scheme.
The Government's 'auto enrolment' initiative was completed in 2018, making it mandatory for all UK employers to provide a workplace pension for their eligible employees - even if you're a micro business with only one employee. This helps your employees make adequate retirement provisions, and also gives them confidence that you (their employer) are contributing to the cost.
Knowing if your employees are eligible under auto enrolment
As an employer, the requirements of the workplace pension legislation state that you must provide a suitable pension scheme for your staff, must enrol the eligible employees into the scheme and must manage the payment of pension contributions for all qualifying staff members.
But how do you know if an employee is eligible?
Employees working in the UK, are split into three relevant categories:
- ELIGIBLE: Eligible employees must be aged from 22 up to the State Pension Age (SPA), and earning above a threshold of £10,000 p.a.
- NON-ELIGIBLE: Non-eligible employees can be either aged 16-21 or SPA-74 and earning above £10,000 p.a., OR aged 16-74 and earning £6,240 to £10,000 p.a.
- ENTITLED: Entitled employees must be aged 16-74 and earning below £6,240 p.a.
As an employer, you must enroll all ELIGIBLE employees in a workplace pension scheme. NON-ELIGIBLE employees can choose to opt in to the pension scheme, and ENTITLED employees can choose to join - but you don't have to contribute in respect of entitled employees. NOTE: directors without service contracts don't count as ELIGIBLE.
Assessing your workforce for each pay period
This isn't a once-only job. For each pay period, you must assess and check your workforce to determine whether there are any changes in eligibility since the last period.
So, if an employee reaches the age of 22, or has a pay rise that takes them over the £10k threshold, you must sign them up to your workplace pension scheme and include them on the next payroll run as eligible for pension contributions.
There are other possible changes to be aware of too:
- Eligible employees can elect to opt-out but must be enrolled first, and contributions deducted. If they opt out, they must be re-enrolled every three years, but can opt out again each time.
- Non-eligible and entitled employees who are in a scheme can opt out at any time. However, you can't encourage employees to opt out.
- Duties start the first day an employee joins.
- New employers can postpone the first assessment for three months from their 'duties start date'.
- It can also be postponed for individuals for three months from their first date of employment and from the first day they become eligible. That gives time for probationary periods, for example, or if there is a short-term spike in earnings. A declaration of compliance needs to be submitted initially and every three years thereafter.
- Contributions are a minimum of 8% of eligible earnings in total, including a minimum 3% employer contribution.
Talk to us about managing your workplace pension
If we currently provide payroll services for your business, we can carry out regular assessments and deal with your selected pension scheme provider on your behalf. There are also various standard notices required to give to employees which we can provide, as needed.
Contact us to talk through the details of our pension service and to discuss the costs of outsourcing this to our team.