Auto-Enrolment – Small Businesses Are You Ready?

February 19, 2015 9:35 am Published by

Since 2012 the introduction of automatic enrolment has been rolling out across the UK and affecting every single employer between then and 2018. This year 50,000 companies are due to auto-enrol their employees and in 2016 a further 500,000 will follow suiAre You Ready For Auto-Enrolment?t.

However, despite being a legal obligation for all employers, many companies have so far faced fixed £400 penalties and other additional escalating fees for not complying with the legislation. So, rather than face financial penalties make sure you understand auto-enrolment and are prepared for your staging date.

What Is Auto-Enrolment?

In order to help more people save for retirement the government have made major changes to how workplace pensions operate. Until now it has been up to employees themselves to opt in to their employers pension scheme. But this has changed and by 2018 all employers will have to automatically enrol all eligible members of staff.

Starting with the largest employees in the UK and followed by everyone else, automatic enrolment simply means that every employer now has a legal duty to register those who meet certain criteria into a workplace pension scheme and continue to contribute themselves.

Once an employee has been enrolled into a workplace pension you, your employee and the government will make monthly payments. For example if Bob puts in £40, you will contribute £30 and the government adds in an additional £10 tax relief. Bob now has a total of £80 in his pension; it’s really that simple.

Where Do I Start?

It may seem like a daunting task, but if you are well prepared the introduction of auto-enrolment shouldn’t faze you too much.

There are a number of tasks you will need to prepare before your staging date, including assessing your workforce to see who’s eligible, choosing a pension scheme and not forgetting to communicate with your staff regarding the changes. If you aren’t sure when your business deadline for auto enrolment participation is looming find out when your staging date is.

Once you know your deadline, it’s probably a good idea to get started straight away. Many larger companies who have already completed the auto enrolment transition found that they needed to start preparing up to a year in advance. Leaving it until the last minute is not only stressful but guaranteed to make the process considerably more complex and potentially more costly.

As an employer it is your responsibility to find out who in your business should be enrolled under the following criteria:

  • Are not already part of a pension scheme
  • Aged between 22 and state pension age
  • Earn more than £10,000 a year
  • Work in the UK

Auto-enrolment Criteria

*SPA = State Pension Age

If you already have a pension scheme make sure you speak to your provider or financial adviser to ensure it meets the requirements of criteria specific auto-enrolment workplace pensions. If you need a new one make sure you approach your provider in good time as they will be taking on thousands of people in the following months. Don’t forget to find out what information your provider wants from you ready for your staging date.

Costs To Consider

Beside paying in to your employee’s pension there are a number of additional costs you will want to consider such as setting up the scheme, getting the right software to manage auto enrolment and any independent advice you may require.

As we have mentioned before it is your sole responsibility to comply with the auto enrolment legislation, not to mention a legal requirement. If you fail to comply with your duties enforcement action is likely to be taken and statutory notices and penalties issued.

The Pension Regulator will on the whole recognise that most employers will want to do the right thing and will aim to educate you in order to comply with the legislation. However, if you choose to ignore your duties they will investigate any breaches of the law and issue formal notices for persistent and deliberate non-compliance.

A fixed penalty will result in a £400 fine with a specific payable period. In some cases, where employers fail to comply further, an escalating penalty notice is issued with a prescribed daily rate of £50 to £10,000 depending on the number of staff you have.

If you do receive a penalty notice, simply pay your penalty using the secure online payment service and avoid the repercussions of significantly higher pay-outs.

Have You Got Payroll Software?

Payroll software is an excellent source for helping you to keep track of the ages and earnings of all your staff and will tell you what you need to do for each individual.

At First Call Financials we have invested in Pension Regulator approved payroll software which can ensure employers never miss a reporting deadline and always comply with their legal duties to their employees. So make sure you get in touch with our team to ensure auto enrolment runs as smoothly as possible.

If you already have payroll software at the office, is it up to date? Can you be sure that your current payroll provider is using payroll software that will meet the auto enrolment reporting requirements? You must make sure your software is programmed with the latest advancements and supports automatic enrolment and don’t forget to test it well ahead of your staging date to ensure that there are no unexpected problems.

Your Responsibilities Don’t End There

Once your staging date has come and gone don’t be fooled into thinking that you are finished dealing with auto-enrolment. You must complete a declaration of compliance confirming to the suitable bodies that you have fulfilled your legal duties. You have a deadline of 5 months following the staging date for this to be complete, but this doesn’t mean you can’t complete beforehand.

Ensure that you maintain records, just like with real-time PAYE, you need organised filed of your automatic enrolment activities including information you sent to your pension provider, and copies of any opt0out requests you receive.

You must, obviously continue to make minimum contributions in order to comply with your duties. Your employee may also pay pension contributions which you will need to deduct from their wages and pay to the scheme on time. Another ongoing duty vital to maintaining a compliance with auto-enrolment will see you check every payday that your employees who weren’t automatically enrolled previously are now entitled or not.

Need A Hand?

Despite some administrative challenges and general getting your head around changes to pension schemes, auto enrolment is a great benefit for your company. If you are an employer and need additional information and advice concerning auto-enrolment give our team a call on 0117 379 0810

Fran Tyler

Fran heads up First Call Financials. She has over 40 years’ accountancy experience and is a Fellow Member of the Association of Accounting Technicians.

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This post was written by Fran Tyler

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