Auto-enrolment: Why start-ups need to act now or pay later
Businesses with less than 30 staff must enrol employees in a pension scheme by mid-2017. It's time to think about auto-enrolment sooner rather than later...
If you’ve already hired your first staff member or are planning to do so in the near future, automatic enrolment (auto-enrolment) is something you need to think about and act on without delay.
It might seem like a boring administration task, but it’s one that can land you in a lot of hot water if you don’t comply. Not to mention the fact that it can take a long time to set up – some analysts have estimated six months set-up time.
In a study published last month, it was revealed that setting up auto-enrolment pension schemes could cost the UK’s start-ups and small businesses a total of £317bn so it’s essential that you get it right first time – particularly as bigger companies are already getting it wrong.
Oxleas NHS Foundation Trust has raised controversy after they offered higher salaries to staff that waived their auto-enrolment right, something that is against the rules. Whilst the Pensions Regulator has apparently deemed this deal to be lawful, it is being reviewed after much public scrutiny – and it’s also unlikely that start-ups would be able to increase pay to such a level, or that they’d get the same treatment from the regulator.
So, what is auto-enrolment?
Auto-enrolment is a new government scheme that makes it compulsory for businesses to automatically enrol their employees in a pension scheme. The employer is also obliged to pay into the scheme, so it is a real cost to your business.
Pretty much all employees are eligible if…
- They earn over £10,000 per year
- They are over the age of 22
- They are younger than state pension age
If you own a start-up with over 30 employees then your staff should have been enrolled already but, from now until mid-2017, it’s the turn for start-ups and small businesses with less than 30 staff.
Once enrolled, businesses must pay a minimum contribution of 1% gross pay in 2016, which will increase to at least 3% by 2018. It’s also mandatory for staff to contribute too.
Why should you be thinking about auto-enrolment now?
As mentioned, it can take up to six months to setup an auto-enrolment pension scheme so to give yourself plenty of time to organise we recommend looking into what you need to do now. The Pensions Regulator states that many employers with few staff reported no setup costs overall, but the 10 hours they mention here are certainly not free – your time is valuable.
You need to consider the obvious costs as it will now cost a little bit extra to employ staff; both in terms of what you pay them and the time you put into them.
With these costs in mind, auto-enrolment is likely to impact upon your recruitment decisions. Do you really need a full-time employee? As it’s only employees who earn above £10,000 a year that are eligible, and contractors don’t apply either, you could save money by looking at more flexible staffing options such as hiring freelancers.
What can you do to ensure you’re auto-enrolment “ready”?
For starters, take a look at this handy auto-enrolment checklist to see how much you need to do.
The first thing to do is to check when your staging date is on the Pensions Regulator’s website. It’s a good idea to seek professional advice as to which provider to use, just as you would if you were setting up an independent pension scheme.
As with any staff related matter, the best advice is to seek advice, especially if you are not sure exactly what you need to do.
That advice needn’t be costly. Most good HR companies will be able to advise you with what to do for auto-enrolment and if you need further help, there are other places to look such as:
- NEST pensions, a government provided scheme that is simple to setup
- Of course, the Pensions Regulator
Whatever you choose to do with auto-enrolment, ensure you think about it sooner rather than later. Your time is valuable, so don’t leave it to the last minute and get it wrong.
This article was written by HR software specialist Citrus HR which includes auto-enrolment as part of its service.