Auto-enrolment guide: The steps you need to take to comply in time
With every UK employer required to auto-enrol certain staff, Startups gives you a step-by-step guide on what you need to do to ensure you’re covered
As part of the workplace pensions reform, auto-enrolment requires every UK employer to automatically enrol their workers into a workplace pension scheme if the employee earns more than £10,000 and is aged between 22 and the state pension age (you can read about some of the providers of workplace pension schemes here).
With UK business owners now responsible for putting in place a workplace pension scheme that complies with government regulations for the first time, if they have staff to enrol, many are understandably concerned about when and where they need to start the process and what impact it will have on their company.
That’s why we’ve compiled an easy step-by-step guide to what you need to do to comply with the new pension duties.
More detailed guidance is published on the Pension Regulator’s website.
1. Find out your staging date
First and foremost, you should receive a letter from The Pensions Regulator a year before your auto-enrolment staging date (this is the date when your legal duties apply). This date is determined by your PAYE reference and is based on data TPR held from on April 1 2012.
Larger employers were staged first and it’s now the turn of small and micro-employers (businesses with under 30 employees) to automatically enrol their staff.
If you haven’t received your initial letter from the regulator or have forgotten it, fear not as you’ll be able to find out your staging date online. However, you’ll need to know your PAYE number for the system to provide answers relating to your employer duties.
Building a website for your business idea is easier than you might think. Our online tool ranks the top website builders that offer free trials.
The general staging dates are:
- Companies with fewer than 30 employees will have a staging date between 1 July 2016 and 1 March 2017
- Employers who don’t pay their employees via a PAYE scheme will have a staging date of April 1 2017
- New employers (PAYE income first payable between April 1 2012 and September 30 2017) will have a staging date between May 1 2017 and February 1 2018
If you wish, you can bring forward your staging date and align it with other business practices, such as the start of the financial year. (See below)
To find out your staging date, use this free online tool.
2. Find out what your duties are
You can find out what your duties are by using the Duties Checker on The Pensions Regulator’s website.
The Duties Checker will look for you to provide information to determine what type of employer you are with regard to auto-enrolment. You will be asked:
- To confirm whether you run a business or not
- Whether your business is active
- Whether you employ anyone
- What your PAYE code is
- The age range of your employees
- The bracket of how much your employees earn
The Duties Checker will then set out the tasks you’ll need to complete. It will also enable The Pensions Regulator to send you letters that apply to your situation.
3. Carry out an assessment of your employees
As an employer, it’s your responsibility to assess your workers to determine whether or not they’re eligible to be automatically enrolled into a workplace pension or not.
A worker is defined as: “An individual who has entered into, or works under a control of employment, or any other contract by which the individual undertakes to do work or perform services personally from another party to the contract.”
Generally, there are three types of workers – an eligible worker, a non-eligible worker and an entitled worker.
Eligible worker: Someone aged between 22 and state pension age earning over £10,000 who must be automatically enrolled.
Non-eligible worker: Someone aged 16 to 74 earning between £5,824 and £10,000 is ‘non-eligible’ but may choose to join a pension scheme to which the employer must contribute if they so wish. This also applies to workers aged 16 to 21 and over state pension age but not older than 74 who have earnings over £10,000.
Entitled worker: Someone earning less than £5,824 is entitled to join a scheme but the employer is not obliged to pay contributions on their behalf.
After your staging date you’ll need to assess:
- Each new employee on the date they start their employment
- You’ll also need to continually monitor all of your staff on an ongoing basis as their circumstances may change. For instance, an employee may change from non-eligible to eligible when they turn 22, or they may become non-eligible if they go down to part-time hours and earn less than the threshold
4. Look at your existing pension arrangements
Some small businesses do already have a pension scheme, but the majority of small and micro employers don’t. If you do have a pension scheme for your staff – often referred to as a ‘stakeholder pension’, you can continue to use this existing arrangement if it meets the automatic enrolment rules. However, you will still have duties to comply with such as checking the right staff are enrolled with the right contributions deducted. This will need to be completed by your staging date and you will need to declare your compliance (see #8 below). If your existing pension scheme isn’t suitable for complying with auto-enrolment duties, you’ll need to choose a new scheme that is.
If you have to set up a new scheme, it’s important to begin this process at least six months before your staging date as it can be quite time consuming.
It’s highly advisable you look through various different schemes for your staff so you get the one that best suits everyone’s needs.
You can find more detailed information on The Pensions Regulator’s site here, but to summarise, your options will include:
The government scheme
The National Employment Savings Trust (NEST) is a pension scheme provider that has been set up by the government that must accept any employer who wants to use it to fulfil their duties. You can find out more about it here.
Independently reviewed schemes
Some providers have had their pension schemes independently reviewed to demonstrate that the scheme is managed to a high standard. This is known as the ‘master trust assurance framework’. There are a number of schemes listed by industry bodies:
You can find lists of these schemes on the following websites:
- Association of British Insurers: ABI members providing qualifying automatic enrolment schemes
- Pensions and Lifetime Savings Association (PLSA) Pension Quality Mark website
Your accountant/financial adviser’s suggestions
If you have an accountant, they may be able to help you find a scheme or a financial adviser that can help.
5. Find out whether you can postpone if you really need to
Some employers may choose to delay their workforce assessment and therefore auto-enrolment. This may be because you have new temporary or short-term employees who will not be working for you in three months.
You may also choose to postpone so as to align auto-enrolment with other business processes you may have such as the start of the financial year.
If so, you can postpone for up to three months from your staging date, a new worker’s first day of employment, or the date a staff member first becomes eligible for auto-enrolment.
The length of postponement may vary for each worker and anyone eligible will have the right to opt-in to your pension scheme during that period. To postpone, you will need to go through the official process, which is:
- Write to staff whose auto-enrolment you are postponing within six weeks of the date the postponement is due to start
The Pensions Regulator’s site has more for a worker.
N.B.: Even if you postpone from the staging date, it doesn’t change the staging date or the deadline to submit your declaration of compliance with TPR.
On your ‘deferral date’ – the last day of the postponement period – you will need to assess whether any member of staff whose automatic enrolment you’ve postponed is still eligible to be enrolled.
If they are, you must put them into a pension scheme straight away. You cannot apply a further postponement period to that member of staff.
6. Communicate the process to employees
Once you have assessed your staff you must you must formally let them know how auto-enrolment affects them specifically.
Within six weeks of the staging date you must write to each member of staff who:
- is being enrolled and explain how auto-enrolment will affect them
- is not being enrolled and let them know if you have a separate pension scheme for them
To ensure legal compliance, send them the information by use of one or more of the following:
- Send a hard copy of the information by post or internal mail
- Hand over a hard copy with information by hand
- Send the information in a body of an email
- Send the information in pdf or other attachments by email
N.B.: Signposting to an internet or intranet site, attaching a URL or displaying a poster in the workplace is not considered ‘giving’ staff the information and therefore does not comply with any legal requirements, although it could be useful as additional information for employees. The Pensions Regulator site is likely to have answers to all your questions.
7. Auto-enrol your eligible employees
Once you have completed all of the above steps, you’ll be ready to officially auto-enrol your eligible employees. In no particular order, you’ll need to:
- Give your pension scheme provider information about your eligible employees
- Provide enrolment information to your eligible employees
- Make arrangements for them to become ‘active members’ of the scheme. This can be via the trustee or manager of the occupational pension scheme or the provider of a personal pension scheme (often an insurance company)
As part of your ongoing duties, you must keep records. For more information about your ongoing duties, which include details about the records you must keep, click here.
It is your responsibility as an employer to provide the correct information to the pension scheme provider, but it can be done on your behalf by an independent financial adviser (IFA), a benefit consultant, accountant or bookkeeper.
You’ll need the following information on all your eligible employees:
- Date of birth
- Auto-enrolment date
- Residential postal address
- National Insurance number
- Postal work address
- Work email address
- Personal email address (if available)
- Gross qualifying earnings in any pay reference period
- The value of contributions payable to the pension scheme by you and your employee in any pay reference period (either as a percentage or a fixed amount)
You are also required to inform employees that they have been enrolled or will be, and provide information on their right to opt out or back in again. Once again, this needs to be provided in writing by letter or email, which can include a pdf or other attachment.
For further information on the enrolment process, you can use this guide from The Pensions Regulator.
8. Complete a Declaration of Compliance with The Pensions Regulator
Once you have auto-enrolled your staff, you must declare your compliance with The Pensions Regulator within five months of your staging date – even if you postponed actual implementation. The Declaration of Compliance is an online form where you must explain how you have met your legal duties as an employer in the auto-enrolment process.
You are legally responsible for completing the form on time ensuring all information is correct, even if you have no staff to put into a pension scheme or someone else has helped you with your duties. An adviser can complete the process on your behalf, but the responsibility for it being done will still reside with you. You risk being fined a hefty sum if you fail to comply.
You can find more information on the declaration of compliance and starting the declaration here.
9. Start contributing to your employees’ pensions
After your staging date, you must start contributing to your employees’ pensions.
The minimum contribution rates that an employer must pay into their workers’ pension initially is 1% up to April 5, 2018. From April 6, 2018 the minimum employer contribution will change from 1% to 2% and from April 6, 2019 it will rise to 3% of employees’ ‘qualifying earnings’.
Qualifying earnings’ refer to earnings between £5,824 and £43,000 and that include the following components of pay:
- statutory sick pay
- statutory maternity pay
- ordinary or additional statutory paternity pay
- statutory adoption pay.
You must pay your contributions for each employee by the date you’ve agreed with your provider and you may be fined by The Pensions Regulator if you pay late or don’t pay the minimum contribution for each member of staff.
You must also deduct contributions from your staff’s pay and you’ll need to these into your staff pension scheme by a date agreed with your pension scheme provider.
Once completed, remember that you’ll need to re-assess your employees every three years from your staging date and any eligible employees who chose to opt out previously will have to be automatically re-enrolled and then will need to individually opt out again if they still wish to do so.
You will also need to monitor the age and earnings of all workers who are not eligible and not already in a qualifying scheme on an ongoing basis. If any worker’s circumstances change in a pay period so that they become eligible, they will need to be automatically enrolled.
Finally, it is important to keep The Pensions Regulator informed of any changes to your contact details so that information will be sent out to the right address.