Since October 2012, auto-enrolment, whereby employers are required to automatically enrol certain workers into a pension scheme and contribute with respect to them, has been rolled out with the larger employers being affected first. It is now the turn of smaller employers to comply, which may be a significant challenge for them given the complex nature of the requirements.
What is auto-enrolment? A reminder
- The automatic enrolment requirements apply from a date called the "Staging Date", which depends on how many staff were registered on the employer’s payroll on 1 April 2012. Employers who had staff on their UK payroll as at that date will be subject to the requirements by 1 April 2017. Employers that first paid staff through UK payroll later than 1 April 2012 will be subject to the requirements on a date between 1 May 2017 and 1 February 2018 (inclusive).
- Enrolment into the pension scheme must be done without the employee being required to give consent or make any decisions, hence the term “automatic enrolment”.
- The pension contributions required are calculated as a percentage of “qualifying earnings” which are broadly all pay, bonus, commission etc, between £5,824 and £42,385 (in 2015/16 figures). The minimum employer pension contributions start at 1%, increasing to 2% from 1 October 2017 and then 3% from 1 October 2018. (Different percentages may apply depending on what definition of "pensionable pay" is used.) Employee pension contributions will also be required unless the employer chooses to make these too.
- The requirements are complex and require employers to monitor which of their workers are eligible to be auto enrolled from time to time. This depends on earnings levels, among other things. Employers should consider in advance how they will monitor their workforce to ensure that all the relevant deadlines are met.
- There are also requirements to provide staff with specific communications about automatic enrolment, and to submit a declaration of compliance (previously called "registration") to the Regulator within five months of the staging date.
Who is now affected?
As mentioned above, it is now the turn of the smaller employers (those with less than 50 employees on the PAYE listing as described in the first bullet point above) to comply, with their compliance or 'staging dates' in the main being phased in from 1 June 2015.
There is no minimum number of employees under which auto-enrolment does not apply. This means that even those employing one employee are affected. So, for example, auto-enrolment will also apply to families employing staff to carry out childcare or cleaning duties, which is likely to take any such 'employers' by surprise.
What to do now?
The Pension Regulator is getting tough on non-compliance and in the last three months of 2014 alone it issued 166 employers with fines of £400 each. The Regulator's director of automatic enrolment commented: "My message to all employers is that failing to declare within five months of your staging date means you risk being fined, which is why we recommend you start your automatic enrolment planning and preparation 12 months before staging."
To avoid penalties, employers should:
- Identify what their staging date is
- Understand what their auto-enrolment obligations are in relation to their workforce
- Ensure that compliance measures are put in place within the prescribed timescales.
Compliance with this complicated area of law will involve careful planning and sufficient time should be allowed to ensure that measures can be put in place to meet with the requirements on time.