By Beatrice Drewitt, Auto Enrolment Specialist, Quartz Payroll
Setting up a workplace pension for your employees can seem like a daunting task; soon it will be a reality for every employer in the UK. This is due to a new pension regulation known as Auto Enrolment. However there are ways to make it easier for employers by avoiding these common Auto Enrolment mistakes to ensure they are ready for their staging date. The staging date is the most important milestone for employers embarking on Auto Enrolment, as this is the date at which the new regulations apply to their businesses.
1. Don’t Bury your Head in the Sand!
The biggest mistake an employer can make is to ignore letters issued by the Pensions Regulator. Fines are set in place which increases the longer the employer is non-compliant. The first letter sent to employers is the letter of nomination, which asks the employer to assign a point of contact to handle their Auto Enrolment responsibilities. This is usually sent in plenty of time to begin Auto Enrolment preparations. Next, a letter of compliance nearer to the employer’s staging date, asking the employer to list the details of their new pension scheme and how they have been compliant. Staying organised with these letters is paramount to successful Auto Enrolment.
2. Constant categorisation is key!
Once the Pension Scheme is set up, contributions must be made to every eligible employee. An employee is eligible for Auto Enrolment if they are between 22 years old and the state pension age, earn over £10,000 a year and work in the United Kingdom. Employers need to access their employees every payroll run to see if they are eligible for Auto Enrolment and contributions must be made. Employees who fall outside of the eligible category for Auto Enrolment can ‘opt-in’ to the scheme however only the employee will make contributions to their pension.
3. Who’s in and who’s out?
If an employee decides they do not want to be part of a workplace pension they can ‘opt-out’. By opting out of a workplace pension, the employee will no longer make a contribution and neither will the employer. The employee can opt back in whenever they wish and will be automatically opted back in every 3 years. A mistake employers may make in regards to opting out is thinking auto enrolment won’t apply to an employee if they wish to opt-out. An eligible employee can only opt out after the first month of contributions, so they must be opted in to begin with and then the contributions shall be refunded if they wish to opt out. If an employee outside of the eligible categorisation chooses to ‘opt-in’ to the pension, the employer needs to monitor their age and earnings closely in case they reach a pay period to which the employer will need to also make contributions to their pension.
4. Stay on the right side of the law
An employee’s choice to opt-out of the scheme must be entirely their own decision. The employer must not incentivise or encourage employees to leave the pension. The Pensions Regulator calls this inducement. Encouraging or persuading your employee to opt-out is illegal. An example of inducement could be to offer your employee a pay rise to opt-out. Large fines can be issued by the Pensions Regulator if this occurs, as every eligible employee in the United Kingdom needs to have a fair opportunity to enrol into a workplace pension. An employer must also ensure they have communicated succinctly to their workforce about when the pensions will affect them, the contribution levels and how to opt-in or out of the scheme depending on their categorisation.
5. Be aware of the contribution levels. Always meet the minimum
Lastly it is important the employer meets the correct minimum contribution levels for Auto Enrolment. As it currently stands the minimum contribution levels are: 1% of employee’s monthly Gross salary and 1% contribution by the employee. This will rise to 3% by October 2018. If the employer does not meet these minimum levels, fines can be issued by the Pensions Regulator for non-compliance. An employee can choose to make higher percentage contributions whenever they wish but this does not need to be matched by the employer.