29/07/2015

By Steven Watmore, Payroll & AE specialist at Sage UK


Auto Enrolment has brought significant changes to the pensions landscape for small business owners. Implemented as part of the government’s campaign to ensure employees in the UK have adequate provision for their retirement, the scheme aims to combat the demographic and economic challenges associated with an ageing society.

Employers are now required by law to automatically enrol eligible jobholders into a pension scheme that meets specific conditions set out in the legislation. For over 14,000 of the UK’s smallest businesses, the time to act has arrived. As of the 1st June 2015, businesses with fewer than 30 employees are being phased into the scheme, and obligated to comply with their duties under Auto Enrolment.

As well as ensuring they act in compliance with the legislation, employers must understand the effect the changes will have on their business over the coming years. Not only will it affect their responsibilities as an employer, it is also an imperative consideration for business planning.

Navigating the Auto Enrolment landscape can be a challenge, particularly for firms that have never set up a workplace pension scheme before. Here are my five top tips for businesses to get organised for the impending changes.

1. Get your staging date in the diary

In order to meet their deadline for staging, small and medium sized firms should leave themselves plenty of time to plan for Auto Enrolment. The burden for ensuring this date is met lies with the employer, and incurring fines for non-compliance is a risk many businesses simply can’t afford.

A great place to start is the Pension Regulators website. Here, businesses can find out their staging date well ahead of time, using a PAYE reference number. This date should be highlighted in the diary, circled twice in red pen and plans made according to this timeline. For firms who don't pay their workforce through a PAYE scheme, their staging date will be 1 April 2017.

2. Preparation is vital

HMRC recommends that small and medium sized businesses set aside at least 12 months to implement the changes, but ultimately the longer businesses allow to get familiar with the new rules and necessary changes, the easier the process will be.

Although the concept is simple, Auto Enrolment is sure to be a more extensive process than most firms anticipate, leading to administrative headaches and potential financial burden for small businesses in particular. To begin with, employers must assess their workforce to establish who’s eligible and ensure payroll systems are prepared for the changes.

The legislation also requires that employers pay a regular contribution into their staff pension scheme. The starting threshold currently sits at 1 per cent of an employee’s qualifying earnings, but this will rise to 3 per cent by 2018 as contributions ramp up year-on-year. Financial forecasts should be undertaken as soon as possible to establish the impact pension contributions may have on future cash-flow.

3. Find a suitable pension scheme

Ensuring the right pension scheme is in place is paramount to offering a quality benefit to employees, while reducing administration time and costs. Investing time to research options will pay off in the long term.

A firm which has a pension scheme in place already may think it can automatically use this for Auto Enrolment. However, this needs to be verified with the pension provider and it’s a complex area.

It’s a good idea for employers to seek guidance from an independent financial adviser, an accountant or a payroll provider. They will be able to provide specific advice to ensure the business is fully compliant with the new rules. Firms should also seek a pension provider that enables them to manage the process online and which integrates with their payroll system to make the whole process smother.

4. Inform your workforce

It is now a legal requirement for employers to inform staff about Auto Enrolment and how it will affect them, what their contribution is as an employer, and their rights as an employee to opt-out of the scheme. This should be communicated in writing via letter or email, and could also come from a pension or payroll provider.

However, employers must be careful to not influence staff in any particular direction, such as offering incentives to opt-out of Auto Enrolment. Breaching these rules may incur financial penalties from The Pension Regulator.

Want to start preparing for Auto Enrolment? You can find out your staging date by visiting the Pensions Regulator website.

5. Ease stress with up-to-date software

Thankfully, help is at hand for employers navigating the complex process. With the up-to-date payroll software, businesses can alleviate the administrative burden and reduce the time and cost issues associated with Auto Enrolment.

Using software which is automatically compliant with the latest HMRC legislation can make the integration between pensions and payroll seamless, and easier for businesses to be compliant than ever before!

For more information on how to prepare your business for Auto Enrolment visit http://www.sage.co.uk/documents/guides/pension-auto-enrolment-guide.pdf