Within the next 2 years all UK employers will be legally required under the Pensions Act 2008 to automatically enrol their workers into a qualifying pension scheme and to contribute to that pension. The timing of implementation depends upon the size of the employer but employers who have employed staff from 1 April 2012 will have to pay into a qualifying pension scheme between June 2015 and February 2018, depending on their staging date.
Once you know your staging date, you will have six weeks from that date within which to register your employees, provided that they are eligible, with a qualifying scheme and start paying contributions. BGA Pension & Payroll, which is powered by Parental Choice, can help with all the administration for you.
An eligible worker is one who:
- Is not already in a workplace pension scheme;
- At least 22 years old;
- Has not yet reached State Pension age;
- Earns more than the minimum earnings threshold (currently in 2016/2017: £11,000); and
- Works or ordinarily works in the UK according to their contract.
An employee who does not qualify to be automatically enrolled still has the right to ask to join a workplace pension.
If your employee qualifies as an “eligible jobholder” (see criteria above), as an employer, you will be expected to pay a minimum contribution into a pension scheme based on your groom's “qualifying earnings”. Qualifying earnings are currently the amount between at an annual gross salary of £5,824 to £43,000 (for tax year 2016 to 2017). The pension scheme must be a qualifying scheme, meeting certain Government standards.
Employers can choose whichever qualifying scheme they wish to enrol their staff in, but for those who are time poor and want a practical scheme that will be ideal for grooms who can transfer any accrued contributions when they leave your employment, the Government have created NEST (the National Employment Savings Trust Corporation). This is an independent trust that has a public service obligation to accept all business and has set charges. Alternatively Standard Life’s Good to Go scheme is open to all employers, including those employing only one person.
Obligations under the Pension Act 2008 apply whether the employee is temporary or permanent as long as they qualify as an eligible worker. Please note that anyone employed for less than three months will not need to be enrolled by their employer automatically, although they can join of their own accord and attract employer contributions too.
Pension contributions will be based on your employee's gross earnings, including overtime and bonuses within the qualifying earnings band. It is therefore very important to agree a gross salary with an employee.
- Currently, employees have to pay in 1% of their gross salary, including tax relief, into the pension scheme whilst employers have to contribute another 1%.
- From October 2017, the employer contributions will increase to 2% while the employee’s contribution will increase to 5%.
- By October 2018 the total amount which will have to be paid into the scheme is due to rise to 8%, of which the employer pays 3%, the employee pays 4% and the government pays a further 1% in tax relief.
These minimum percentages do not apply to your employee's entire salary but only on what they earn over a minimum (currently £5,824) up to a maximum limit (currently £43,000).
For example, for a groom who earns £27,000 a year, the minimum percentages apply to the difference between £27,000 and £5,824, which is £21,176. In this example, the groom would currently have to pay £211.76 per year from his/her salary and the employer would have to pay £211.76 per year.
The contributions are taken from a employee's gross salary. If you agree a net salary, then the consequence is that the employer will end up paying more overall. If you agree a gross salary then your employee will receive slightly less net pay.
If your employee does not want to be enrolled in a pension, you are still legally obliged to enrol her but once registered they will have a month in order to opt out from the day they officially becomes a member of the scheme. So an employer will still have to set up a pension scheme and register before the employee can opt out.
Any contributions made to the scheme within that month can be refunded to the employee at the time of their next payroll. Even if an employee opts out, an employer will still have to keep records. Employees who opt out can rejoin at any time and employers will also have a duty to automatically enroll employees back into the scheme approximately every three years provided that the employee is still eligible.
Employers will not be able to ask potential employees at interview or current staff if they plan to opt out of auto-enrolment, nor will they be able to offer inducement to opt out such as higher salaries or one-off bonuses as this is illegal and can result in a substantial fine.
BGA Pension & Payroll is working on your behalf should you need any more information on what auto-enrolment will mean for you. Not only can we can help you with the calculations and determining the financial implications for your family, but we can also guide you through the auto-enrolment process and deal with the administrative hassle of determining the amount of contributions as well as of registering with a qualifying pension scheme.
BGA Pension & Payroll will ensure that you are compliant with the legislation when it applies to you. Our partners, Parental Choice, are an expert and experienced team and will provide free and impartial advice.