Does my business need to bother with auto-enrolment? Your questions answered
Think your business is exempt from setting up a workplace pension scheme? Think again. We’ve asked the experts to answer key auto-enrolment queries…
A number of business owners appear to be putting auto-enrolment on the back-burner because they don’t think auto-enrolment applies to them and, in doing so, are risking fines of up to £5,000 and even court action.
Regardless of size or sector, the government requires all employers to work out which staff are affected by auto-enrolment – even those business owners without a PAYE scheme in place.
We’ve provided some real-life business scenarios to clarify how auto-enrolment applies to your business and explained some exceptions where auto-enrolment might not apply to you …
Q: I run a small business and already have a group pension in place. I can’t see why I would need to change my existing pension scheme and don’t think I need to – I’ve had a pension scheme in place for my employees for over five years and it’s a better standard than most! We’re going through a particularly busy time at the moment and I don’t want to spend my time worrying about auto-enrolment if it doesn’t apply to me. Do I need to bother?
A: Andrew Kay of Bishop’s Financial Planning writes:
“Yes, you do need to bother. The criteria setting out what makes your pension scheme fit for purpose are quite specific. The scheme you use for auto-enrolling your workers must be a Qualifying Workplace Pension and allow members to be enrolled without requiring them to do anything, as set out by the legislation. Full details can be found on The Pension Regulator website here.
“Your existing scheme may already meet the criteria but you must investigate this by asking the question of your scheme pension office. You’ll also need to check your duties with The Pensions Regulator and complete a Declaration of Compliance to confirm that you have met the necessary legal requirements.”
Q: I run a company with quite a young team and I don’t think that they’re too fussed about being enrolled in a workplace pension scheme. I sent out an initial letter communicating auto-enrolment to them and the responses I had suggest that they aren’t concerned about it, some staff even emailed me back saying they don’t want to contribute to a pension scheme. If my employees aren’t bothered about auto-enrolment, then surely there’s a way around it?
A: Steve Long, small business consultant for Business Doctors, writes:
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“The purpose of auto-enrolment is to get people saving for the future again. If you have any staff that are aged 22 or over but under state pension age who earn over £192 per week or £833 per month you will have to automatically enrol them into an automatic enrolment pension scheme.
“You must make contributions, your employees must make contributions and HMRC will make a contribution.
“Whilst this is a change in the law it also represents a great opportunity to get closer to your team and engage them in the process.”
A: Sable independent financial advisor, Bill Monty, adds:
“This is a common misconception, and can lead to substantial penalties. Should any of your staff be classified as an ‘eligible jobholder’ then you are required by law under the Pensions Act 2008 to automatically enrol them into an automatic enrolment scheme and contribute a percentage of their earnings into it. It is also common for staff to not initially see the benefit of saving for their retirement.
“However, The DWP’s qualitative research with employers who staged in 2014 used a sample of 50 employers and 100 workers who had opted out. It found that these employers had an average opt-out rate of 12% within a range of 5-15% – regardless of their age groups – so it is likely most of your staff will stay in and you, as the business owner, need to prepare for that.”
Q: I own a luxury chocolate shop and we always employ extra staff for Valentine’s, Easter, Halloween and Christmas; typically for around three months of the year. These employees are only seasonal and on short-term contracts. Their hours also vary depending on customer demand which means their pay can fluctuate. Do I need to put them into a pension scheme? Can I just delay working it out?
A: Long writes:
“If you employ staff whose hours vary, pay fluctuates, are seasonal or are on short-term/temporary contracts then the legal duties will still apply to you. What duties you will have towards them will depend on their ages and earnings.
“From your staging date, you must work out who to put into a pension scheme based on their ages and how much they earn. Even if the number of people you employ varies, or they have fluctuating hours and pay, you must assess them individually each time you run your payroll. Your payroll software, if it has an AE functionality, should help you to automate this process.
“Any staff that are aged between 22 but under state pension age and earn over £192 a week or £833 a month must be put into a pension scheme which you must contribute towards.
“You can delay working out who to put into a pension scheme for some or all of the people you employ for up to three months. This is known as ‘postponement’.”
Q: I’ve been operating as a sole trader for the last three years and don’t have anyone working for me. I’ve heard about auto-enrolment and read some news about it but I’m not really sure if it impacts me. Do I need to set-up an auto-enrolment pension scheme?
A: Kay writes:
“No – as you do not employ anyone who is eligible to enrolled and you do not have to create a scheme until you do.
“Remember though, that The Pensions Regulator does not know your circumstances, so you will need to inform TPR if you have received a letter and you are not an employer. But as soon as you employ someone the duties will apply to you.”
Q: I’m part of a family business – myself, my dad and my brother are all directors of the company. Does auto-enrolment apply to us?
A: Monty writes:
“This really boils down to whether they have a contract of employment with the business or not, but in most situations like this the directors will not need to be assessed for automatic enrolment purposes.
“If an individual is a director of a company and the company has no other employees, that individual is not a worker by virtue of any office that they hold or contract of employment under which they work. The company is therefore not subject to employer duties in relation to that individual.
“Similarly, if the company has more than one director and they don’t employ anyone else – and none of the directors have a contract of employment with the company – then none of the directors is a worker and the company is not subject to employer duties in relation to them. But if two or more directors have a contract of employment with the company, those directors become workers, and the company will have automatic enrolment duties in relation to them.”
Don’t be in the dark when it comes to auto-enrolment. Visit The Pensions Regulator for comprehensive advice on setting up an auto-enrolment pension scheme, staging dates, checking which staff need to be enrolled and more.