Workplace Pensions and Auto Enrolment

We have already identified the staging dates for all our clients who operate payrolls. The staging date is the point in time when an employer acquires a legal obligation to comply with the Working Pension Regulations.

The Pension Regulator recommends not starting the auto enrolment process until 12 months before the staging dates, which means most of our clients will need to start planning how they are going to deal with Workplace Pensions in late 2016. Some of our clients, however, have staging dates in 2016 and have already put in place the required systems and procedures to ensure full compliance when their staging date arrives.

The auto enrolment process is pretty straightforward but it does take a considerable amount of administrative work to identify and inform all of your employees with their rights in anticipation of the staging date. Then you have to organise a pension provider. Then you have to formulate and introduce the extra adminsitrative systems to calculate the correct deductions, record and pay over the contributions, and final safeguard all te reelvenat information for the next six years. The employer also has to complete and submit the final declaration of compliance to the Pension Regulator that the auto enrolment process has been successfully completed … unless they wish to pay a series of fines.

Some small employers have been misled into believing they can opt out and avoid the auto enrolment process. In fact it is the other way around … employers have to complete the auto enrolment process before their individual employees can elect to opt out of the scheme.

You can read all about the auto enrolment process in the following Pension Regulator’s guide or visit their website for the latest news and guidance.

We provide the essential steps you will need to take below, but the most frequent question most small business employers ask first is how much is the auto enrolment process going to cost me?

The Costs

We believe the costs can be broken down as follows:

  • The initial cost of planning and liaising with employees as the auto enrolment's staging date approaches;
  • The extra annual cost of running compatible payroll software tha tcan deal with auto-enrolment;
  • The extra administrative cost of calculating contributions and making sue the corect funds are paid over to the pension provider by the 19th of the following month;
  • The extra administrative cost of joiners and leavers to your workplace pension scheme;
  • The extra cost to the payroll costs of actually having to meet the employer's contributions to the pension schemes (see the table below).
Dates Employee Contribution Employer Contribution Total Contribution
Before 05-04-18 1% 1% 2%
06-04-18 to 05-04-19 3% 2% 5%
06-04-19 onwards 5% 3% 8%

The First Steps of Auto Enrolment

Know when you need to be ready

We have already identified the staging dates and account references for all of our clients and started scheduling the steps that they will need to taken in the run-up to auto enrolment.

Most employers will already have received a letter from the Pension Regulator giving you a unique ‘letter code’ and advising you of your staging date.

You can always obtain the same information online by clicking here and enter your PAYE Reference and/or Payroll Accounts Office Reference Number as required.

Take a look at this useful summary page of the actions you as the employer will need to take to complete the auto-enrolment process.

Start planning at least 6 months before your staging date

The Pension Regulator provides an excellant interactive enrolment planner we recommend you use to help you prepare. It provides clear and consise guidence on what steps you should take and when you shoud start and complete them by.

Check who you need to enrol

Employers are required to carry out a full assessment of all their staff’s workplace pension rights before they reach their staging date.

The rights of each employee between the ages of 16 and 74 are determined by the amount they are paid. You can learn more about those rights by reading this section of the Pension Regulator’s website.

It is anticipated that the practice of paying owner-directors of small companies the minimum level of salary (circa £883/m) to maximise tax planning will come under attack from the HMRC because it conflicts with complying with the minimum national wage. Such people often work far in excess of the standard 35 hours a week, which would equate to a salary of at least £1,016.17 if you apply the £6.70 MNW effective from 1st October 2015. Not a big difference, but a factor that should be kept in mind as we move forward in 2017.

Choosing a pension scheme

If you have an existing scheme for your workforce (perhaps called a ‘stakeholder scheme’) you should check with your pension provider to see if you can use it for automatic enrolment.

If you need to open a new scheme, make sure you approach a pension provider in good time because they will be taking on thousands of employers in the coming months. Don’t leave it to the last minute.

The Government has set up a pension scheme called the National Employment Savings Trust (NEST) to accept all employers wishing to use the scheme for automatic enrolment.

This is only one of a number of pension providers the Pension Regulator recommends and it is important you give yourself sufficient time to research what options are available to you and take professional advice if needed to choose a reliable pension provider.

It is important that the scheme you choose is well-run and offers good value for money for you and your staff.

Pay particular attention to any charges that may be made for registering and deregistering employees as they come to and leave your employment.

At staging and beyond

At your staging date you will need to identify which members of staff to automatically enrol and which will have a right to join your pension scheme on request.

By this point you will already be expected to know what information your nominated scheme provider(s) wants from you, and you are in a position to collect in and pay over the contributions your staff and you will make to the pension schemes before the deadline your provider(s) has given you.

The Qtac bureau payroll software we operate here at MAAP will help reduce the administrative burden this process all represents, including producing all the template-based correspondence that has to be sent out and collected back in to ensure compliance.

The Pension Regulator also provides some useful template letters if you don't wish to avail yourself of the versions MAAP will provide at the appropriate time. Click here to access the template letters.

Postponing

Although you cannot postpone your staging date, you can choose to postpone automatic enrolment for up to three months for some or all of your staff.

For many employers, the only reason for postponing will be to save 3 months of employer contributions. In the greater scheme of things, the saving at 1% will probably not be worth the extra administrative costs of write to all your staff to tell them you have postponed the automatic enrolment for them.

Opting-out

Employers thinking they can avoid the costs of auto enrolment will find opting-out it is not a solution they ca take advantage of at all.

In fact we anticipate opting-out will become the bane of the employer’s lot because there are so many legal consequences for failing to make sure any opt-out request received by an employee is handled correctly.

Work with MAAP to make the auto enrolment process worry-free

MAAP will work with you to make the auto enrolment process as painless as it can be

We have already started working with clients as they progress through the auto-enrolment process and we are pleased to report it is not as onerous as one might think. You just have to methodical and organised.

That said, it is important you do not underestimate the extra time involved in the auto-enrolment process. It can take many months to set-up some pension schemes, so leaving it to the last minute is certainly not recommended.

To keep thing sin perspective, a small employer with a few staff could probably process their complete monthly payroll in under a few hours. Most of that time would be probably be spent collecting in the missing information about what hours to process for each employee. A joiner or leave might add an hour or so to the clock.

We anticipate the employers will now spend a complete day a month processing their payroll when they have to deal with work place pensions. Processing a joiner or leaver will take as much time as it needs to fill in the paperwork required by your choice of pension provider. For this reason, the ability to process a joiner or leaver through a secure online portal is a feature you should highly value when making your choice of a pension provider.

Please call us on 01202 482121 to discuss any concerns you may have about the workplace pension scheme and the auto enrolment process.

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MAAP Accountants
Sigma House, 44 Willow Way
Christchurch, Dorset, BH23 1LA
Tel: 01202 482121
info@maap.co.uk