From 6th April 2019, the amount paid into an employees pension has gone up. The employee contribution will rise as well as what the employer needs to pay.
So, what's changed? And what do you need to do?
Here's an essential guide to everything an employer needs to know about the Pensions Auto Enrolment.
What do I need to do to meet my obligations and when do I need to do it?
If your business began before 1 October 2017, you would have had a 'staging date' given to you by the Pensions Regulator. This is the date you would have needed to begin assessing eligible employees for their workplace pension. If your business started after 1 October 2017, your pension auto enrolment obligations begin on the day that you hire your first staff member. More commonly known as 'duties start date'.
Need a refresher on what your company needs to do to adhere to the rules?
Auto-enrolment can be confusing but here's what companies MUST do to comply:
- You must have a pension scheme in place
- Sign and complete a declaration of compliance with the Pensions Regulator
- Auto-enrol all eligible employees into your pension scheme and pay your contributions
- Communicate regularly with employees to make sure they know how to contribute and what your role is in their pension
- Assess your workforce regularly to see who is eligible for auto-enrolment
- For employees who have opted out, you must re-enroll them every three years (known as triennial re-enrolment)
- Keep clear and adequate records
Do all of my employees need to be automatically enrolled?
The simple answer is no but let's break that down. Pension auto-enrolment have categorised three different types of employee:
Eligible Jobholder - This is an employee who is aged between 22 and State Pension age and earns more than £10,000 per year. They must be auto-enrolled into a pension scheme. With this type of employee, you'll have to pay at least minimum contributions, which is your legal obligation and there's no getting around it.
Non-eligible Jobholder - This is an employee who earns more than £6,032 (£6,136 for 2019/20) up to £10,000 per year or any employee who earns more than £10,000 per year and is younger than 22 or older than State Pension Age. They do not need to be automatically enrolled. It is their right if they choose to opt into the pension scheme you're providing meaning you would have to pay at least the minimum level of contributions like you would for an eligible jobholder.
Entitled Worker - This is an employee who earns £6,032 (£6,136 for 2019/20) or less per year, regardless of how old they are. An entitled worker does not need to be automatically enrolled onto your pension scheme, but they have a right to opt in if they wish to. If they do want to opt-in, you, as a company, do not have to pay any pension contributions.
With any employee, you'll want to be crystal clear on what they're entitled to and what rights they have concerning their pension plus they must receive written communications setting out their rights under the auto-enrolment scheme.
What contributions am I legally obliged to pay?
This all depends on how you calculate pensionable pay. The minimum requirement is for contributions to be paid on an employee’s earnings between £6,032 and £46,350 in the tax year 2018/19 (known as qualifying earnings). This range will now rise and be from £6,136 and £50,000 for the 2019/20 tax year. However, some employers choose to pay more than the minimum contribution. If you opt to do this, you'll need to confirm the basis of your pension scheme agreement with a certificate to show that you are meeting minimum requirements. This certificate then has to be renewed every 18 months.
What if an employee doesn’t want to join the pension scheme?
If an employee is enrolled in the scheme but would like to opt out, they have 30 days from the day of their enrolment to do so. They are also entitled to receive a refund of any employee contributions taken within that time. They're also allowed to opt out anytime after the 30 days but would not be eligible for a refund for any contributions. An eligible employee who is new to your company must be auto-enrolled onto the scheme, but if they don't wish to join, then you have to advise on how they can opt out within the 30 days, as to not lose any contributions.
Any company found to be encouraging employees to opt out can be hit with significant financial penalties, so it's best to just give each employee all the information they need to make their own informed decision.
What happens with tax in relation to auto-enrolment contributions?
When you contribute, it's classed as an allowable expense meaning it can be offset against profits, for Corporation Tax purposes. Your employee's contributions qualify for tax relief. This is arranged in 2 different ways.
The first is Net Pay Arrangement - All contributions are deducted from their gross pay, meaning employees will automatically receive their tax relief up front.
Relief at Source Arrangement - This means contributions are deducted from net pay and the pension provider adding the tax relief at 20% to the pension contribution.
Auto-enrolment isn't the kind of thing that you do once and then never have to think about again. It's an ongoing process which you'll want to get right, every time. Regularly review your procedures and keep all records crystal clear and compliant. As an employer, you have obligations, and you'll want to do right by your employees. A professional and transparent company who looks after its workforce is one that retains the best employees.
For more information on your workplace pension duties please visit The Pensions Regulator (TPR) who is the UK regulator of workplace pension schemes
This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice. When making financial decisions, it is important to seek appropriate financial advice.