What employers should know when assessing their workforce for Auto Enrolment
Over the next year 45,000 businesses will be reaching their Auto Enrolment staging date. In 2016, when it becomes the turn for small and micro businesses to stage, that figure is predicted to be 45,000 businesses a month!
As employers it is your job to know what your obligations are towards your employees and how they need to be carried out. One of the main steps an employer has to complete in the preparation before their staging date is to assess their workforce. All employees will need to be assessed to see if they qualify to be automatically enrolled.
If there are only directors in the company, none of whom has a contract of employment, then you do not need to set up a Pension Scheme but will have to inform The Pensions Regulator of your company circumstances (see our previous blog from 7th April to find out more). It is important to note that with the exception of Directors ALL EMPLOYEES MUST, BY LAW, HAVE A CONTRACT OF EMPLOYMENT.
Assessing your workforce
Your workforce will fall into three categories depending on their age and earnings;
- Eligible – aged between 22-SPA (State Pension Age) earning above £10,000
- Non-eligible – either aged 16-21 or over the SPA-74 and earning either above £5,772 but below £10,000 or earning above £10,000 but not in the eligible age bracket
- Entitled –earn below £5,772
Once you have assessed your workforce different rules will apply to what correspondence you give them. There are a couple of key differences between the three categories they are as follows;
- Eligible employees – have to be enrolled automatically into the company pension scheme. They then have 1 month to Opt-Out if they choose to. Both the employer and the employee make contributions into the pension.
- Non-eligible employees – are not enrolled automatically but are given the option in writing to Opt-In. Both employer and employee make contributions.
- Entitled employees – again they are not enrolled automatically into the company pension scheme but have the right to join. The employer is not obligated to contribute but can if they wish.
For example from the table below you will see that Mrs A Allan employs 15 members of staff, herself included. She has 12 employees that are between 22-SPA and earning over £10,000. Therefore, they are all eligible and must be automatically enrolled into the company pension scheme. If Mr I Innes says he is going to opt out he will still need to be automatically enrolled before he can then officially opt-out. Remember employees have 1 month after being enrolled to opt-out if they wish, therefore, you must ensure that the pension scheme enables you to refund any contributions that are taken from you the employer and the employee within the first month.
The table highlights one non-eligible employee, Mr M Matthews is non-eligible because although he is within the 22-SPA age bracket he does not earn more than £10,000. He can opt-in if he wishes and the company will also have to contribute to his pension. From an employee’s point of view this is a good scheme because they will contribute, the employer contributes, and the Government contributes by way of tax relief.
Mrs A Allan has 2 employees who are both under the age of 22 and earn less than £10,000. They are entitled to join the pension scheme if they want but the employer does not need to contribute. Remember as soon as they turn 22 or start earning £10,000+ their eligibility will change. In this example Mrs A Allan has decided that the company will contribute towards the 2 entitled employees’ pension in order to show her maximum contribution costs over a year.
The table also shows the % contributions the employees and the employers have to follow as a minimum. There is a fixed increase over the next three years;
- From Staging Date – Employer’s contribution of 1%
- From 1st Oct 2017 – Employer’s contributions increase to 2%
- From 1st Oct 2018 – Employer’s contributions increase to 3%
The annual and monthly costs to Mrs A Allan’s company are above. After assessing her employees she will need to plan ahead and take advice on how best to manage these additional costs to the company.