We’ve mentioned it before, but make no excuse for highlighting it again: Auto Enrolment is coming your way and you need to be ready for it. We’re talking about the legal responsibility of all employers to provide an appropriate, approved workplace pension scheme for their staff. It doesn’t matter whether you run a site as a dealer, or as a commission-operator; whether you trade as a limited company or as a sole-trader/partnership: if you employ staff and are registered as an employer with HMRC then Auto Enrolment will affect you. The only question is ’when’ and the short answer is ’anytime between now and October 2018’.
Now some readers may look at that date and immediately decide that it’s too far in the future to bother about. A few others may think that this has been rumbling on since 2012 and hasn’t affected them yet, so it might go away before they have to do anything about it just like Stakeholder Pensions did a decade ago.
They’d both be wrong. October 2018 is the last date by which all employers are expected to be compliant; most large employers are already in the system, and many medium-sized businesses are also now within the net.
The Pensions Regulator (TPR) is currently notifying all remaining (ie smaller) employers of their staging date some 12 months before they reach it. If you haven’t already heard from them, then you can find your own staging date online at the TPR website using your PAYE reference. If, for any reason, you don’t pay your staff through a PAYE scheme, your staging date will be April 1, 2017.
However, don’t wait for official letters and then panic. You need to think and organise yourself well beforehand. The recommendation from those working in this area is that you really do need to start preparing at least 12 to 18 months before your staging date especially since it isn’t just extra administration that you’ll have to do, there will be extra costs for your business as well.
The first step is to find a suitable pension provider. The provider has to offer a scheme that is approved and suitable for Auto Enrolment. Even if you already operate some form of employer pension for some of your employees, your existing scheme may not be suitable for this.
The next step is to assess your workforce to determine which of three categories each individual might fall into:
Eligible Jobholder people who must automatically be enrolled into a qualifying scheme.
As the employer you must make at least the minimum contribution for these workers as long as they remain in the scheme.
Non-Eligible Jobholder people to whom you must offer the opportunity to opt into a qualifying scheme, and again you must make at least the minimum contribution if they choose to enter it.
Entitled Worker people to whom you must offer the opportunity to join the scheme, but without your needing to make an employer’s contribution if they do.
You will need to consider the age and pay rate of each employee to assess which category they will come under. At this point you may suddenly realise the potential cost of the employer contributions that you will have to make.
Because you’ll be making pension contributions for some or all of your staff, and the rates of employer contributions are staged to increase each year between now and 2018, your overall employment costs will rise so you should be budgeting for that increase. Bear in mind also that since some or all of your employees may be making personal pension contributions for the first time in their working lives, their take-home pay will drop. Are they going to complain about it and ask you to make up the difference, even though you’ll also be making your contribution?
Once you’ve assessed your workforce, the next step is communicating the changes to them in writing. You’ll have to advise them of their rights and how the scheme affects them. There are several letters that have to be sent to each employee at the appropriate times, and you will need to keep records of what you’ve sent and to whom so that you can demonstrate your compliance if there’s ever any dispute.
Now you’re ready for Auto Enrolment but obviously this isn’t a one-off event: employees come and go; their ages and pay rates change. You’ll need to set up a continuous process of reviewing each individual’s circumstances, and offering an opt-in or joining process for new members of staff. Once you’ve completed Auto Enrolment, you’ll need to register with TPR and then re-register every three years.
Like all things related to payroll, small employers are likely to find it’s rather bureaucratic and very time consuming if they try to do all of this administration themselves.
There are quite severe financial penalties for non-compliance whether that’s failing to complete the process on time, or not doing it correctly. Take, as an example, an employer with between five and 49 staff. After numerous one-off penalty fines, they could reach a situation where continued non-compliance results in fines of £500 per day until they comply and any outstanding contributions will still have to be paid, with interest.
Don’t ignore it
You can’t afford to ignore Auto Enrolment; nor can you afford to get it wrong if you try to do it yourself. Fortunately there are ways of doing it properly and on time.
If you already use a payroll service then they should at least be able to advise you, and some will even do all of the work for you for a very low cost. Naturally, that includes PAYEPeople, and there’s a lot more information on our website (http://www.payepeople.co.uk). Our staff will be more than happy to discuss your individual needs.
Don’t wait until you receive the letter from TPR prepare today.