The UK government’s auto-enrolment scheme was introduced in 2012 but initially it was only aimed at larger companies. However, it is now starting to affect smaller businesses too, with all UK companies expected to be compliant by 2017.
Any company with at least one employee is required to enrol its staff into a pension scheme with auto-enrolment and pay contributions towards it. Initially it must make up a minimum of 2% of the employee’s annual income; 1% from the employer, 0.8% from the employee and 0.2% from tax relief from the government. This of course means that instead of opting in to a pension scheme, employees are enrolled automatically and therefore have to opt out if they do not wish to participate. So as a small business owner the responsibility now falls to you.
Despite announcements around auto-enrolment having a fair amount of media coverage, some businesses owners just do not know how to start. Making sure you plan ahead, budget and remain compliant doesn’t need to be scary.
What you’ll need
To begin with, here are a few things you will need before you start the auto-enrolment process.
- Your PAYE reference number (available on letters sent to you from the pension regulator).
- Your 10-digit letter code (available on letters sent to you from the pension regulator).
- Age and approximate earnings of all of your staff (available internally).
These are the details required in order to go through the entire process of auto-enrolment and begin declaration of your compliance. But that’s not all there is to it.
What else you need to think about
Who will be your main contact?
This refers to the person within your company that will be accountable for the enforcement of the new pension scheme, and the person who will ensure that all the legal responsibilities are met. All documentation and contact will go through this person. This is an important decision that needs to be made quite early on in the process.
When is your staging date?
This simply means the date that the new law applies to your company. This will be based on the size of your largest ‘Pay As You Earn’ (PAYE) scheme, and companies with PAYE schemes shared by multiple employers will have the same staging data in a majority of instances. To find your staging date, go to thepensionregulator.gov.uk and enter your PAYE reference number. If you do not pay employees through a PAYE scheme, then your staging date will be 1st April 2017.
Who exactly are you responsible for?
People who will need to be automatically enrolled are called ‘eligible jobholders’. Eligible jobholders are people who are aged between 22 and the state pension age, ordinarily conduct their job role in the UK, and who are earning £10,000pa or above.
Communicating these pension changes to your employees
Employers must inform all of their employees, in writing, explaining how they will be affected by the changes. Each letter must be specific to the individual, and given at the right time (now and if they change work category in the future), with all of the correct information. Letter templates featuring everything you are required to inform your employees are available on the pension regulator website.
Registering with the pension regulator – and keeping records!
You are required to inform the pension regulator of how you have fulfilled your role as an employer under these new regulations, and keep records of each employee, their status within the scheme, and your payment of contributions. You must declare your compliance no later than five months after your staging date, and this is done through an online form that outlines how you are fulfilling your legal duties.
As much as businesses can be tempted to ignore auto-enrolment in the hope it will go away, this can get your into hot water. Business owners who don’t comply can be issued with fines, and failure to act on these fines will result in court action – so it really is best to get organised and prepare for the inevitable.