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Auto-Enrolment …Employers FAQs

This series of questions and answers is designed to answer most things an employer would ask and has asked us…but it isn’t an exhaustive list.   If you have a question that is not answered here then please get in touch for more information!

Is there any way around the need to comply with all the employer duties?

As an employer, you must comply with all of your duties. The Pensions Regulator will audit all companies to make sure they are fulfilling their duties and there are substantial fines that may be levied against companies that do not comply.

Are there any exclusion to the employer duties?

Yes, there are exclusions and they are split into two.

People who are treated as workers. The following people are treated as workers but are not covered by the employer duties:

  • those who do not work or ordinarily work in the UK
  • those under age 16, and
  • those aged 75 and over.

People who are not treated as workers. The following people are not treated as workers so the employer duties don’t apply to them:

  • the self employed
  • members of the armed forces, and
  • directors of companies. unless they have a contract of employment to work for that company and there is someone else employed by the company under a contract of employment.

Do the employer duties apply to employers who already have a pension scheme?

You still have employer duties even if you have a pension scheme that meets the minimum requirements. Even employers who have an existing pension scheme that is better than the minimum standard will have employer duties to perform – for example telling existing members about how auto enrolment will affect them, and automatically enrolling new workers.

If an employer uses NEST, are they exempt?

No. All of the employer duties apply regardless of pension scheme type.

Will NEST fulfil my all my employer duties?

No. NEST is a pension scheme into which pension contributions from auto enrolment can be paid and invested. However, there are employer responsibilities that must be carried out that NEST will not undertake on your behalf.

What penalties will I face if I don’t comply?

The Pensions Regulator will check that all employers are complying with the new rules. If you are found to be in breach of any of your responsibilities, you will be issued with a notice of enforcement. You have the right to challenge that notice. According to the outcome of the investigation, a penalty will apply. The penalty will very much depend on the nature of the breach, but for extreme cases could be a daily fine of as much as £10,000.

When would an employer use postponement?

As an employer, you have the right to postpone the enrolment of your employees for three months after the ‘staging date’. This can reduce your costs significantly. There may be other benefits too. You may want to use the postponement facility for administrative reasons. For example, you may:

  • need time to assess all of your employees,
  • prefer to align the enrolment of members with the payroll process, or avoid paying a part-month of contributions,
  • want to avoid having to assess employees who are with you temporarily, or who have a one-off spike in earnings and would otherwise not qualify.

You are also able to postpone the enrolment of an individual employee for three months from the day they start with your company, or from the date an existing employee becomes eligible to join the scheme.

How much will auto enrolment cost?

There are two sets of costs.  Firstly, the costs of setting up and then administering the scheme and, secondly, the costs of contributing to the scheme.

The employer contributions amount to either 3% or 4% of workers earnings depending on the pension scheme you choose.  We can provide a rough guide to the costs as part of our service.  A formal assessment can also be provided at a small extra charge.  Please ask us for more information.

The employee also has to pay pension contributions of 4%, although this can be through a salary exchange or salary sacrifice scheme

What are the levels of contribution?

That depends on the type of scheme and contribution basis chosen by the employer.  When you speak to your pensions provider they will explain that there are three levels of contributions 7%, 8% and 9% of qualifying earnings. However the 7% will not necessarily mean the lowest contributions. This is because different remuneration is included in the term “qualifying earnings” in the different schemes.

Here’s an example:-  Say an employee receives a basic salary plus a discretionary bonus.  If qualifying earnings or total salary (the 7% certification route) are used, the bonus will be included. If either of the other two certification routes are used, the bonus will not necessarily be included as it depends on the employer’s definition of pensionable earnings.

What is the phasing of contributions?

Under Auto-Enrolment the pension contributions are phased in, so you don’t have to pay the full amount straight away. The phasing is:

Until Oct 2017 Oct 2017—Sept 2018 From Oct 2018
Employers 1% 2% 3%
Employees 0.8% 2.4% 4%
Tax relief 0.2% 0.6% 1%
Total 2.0% 5.0% 8%

Note that this is the minimum contribution.  The maximum contribution is the current £40,000pa contribution limit.

We can give you an estimate of your total contributions as part of our AE service, please speak to us to arrange this.

Is salary exchange permitted to meet the minimum contribution levels?

Yes! Salary exchange is where an employee can give up part of their salary or bonus to their pension fund, resulting in their gross salary being reduced and the employee paying less tax and national insurance. As an employer, you will make savings on your National Insurance bill, which you can then use to reduce your costs. We can show you how salary exchange can save you money and also set it up for you. Please ask your client manager for more information.

Why would an employer use postponement?

Employers have a duty to assess their workforce to identify the types of worker they employ and the duties they’ll have to carry out. For a maximum of three months, postponement gives employers the option to defer:

  • the assessment of their workers or
  • the auto enrolment date for workers who have been assessed.

This allows employers to smooth the administration of their employer duties and align it with their existing business processes. For example they can use postponement to:

  • stagger the assessment of workers at their staging date
  • align the assessment of workers with their payroll processes
  • avoid having to assess seasonal workers or those with one-off spikes in earnings
  • avoid calculating pension contributions on part month earnings.
  • They can use postponement with their whole workforce, groups of workers or individuals.

If an employer uses postponement, how does that affect hourly paid/zero-hour contract/temporary/seasonal/agency workers on short term contracts?

Where the contract of employment is for a period of less than three months and the worker has not joined in the meantime, the employer duties fall away at the end of the contract. Where an employer re-employs a worker, they can operate the waiting period again if they wish and do not have to take into account any previous waiting periods.

What constitutes ‘Qualifying earnings’?

‘Qualifying earnings’ is a reference to earnings of between £5,668 and £41,450 (for 2013/14 tax year) made up of any of the following components of pay that are due to be paid to the worker:

  • salary
  • wages
  • commission
  • bonuses
  • overtime
  • statutory sick pay
  • statutory maternity pay
  • ordinary or additional statutory paternity pay
  • statutory adoption pay.

The assessment of whether a component of pay constitutes an element of qualifying earnings is for the employer to make.

What constitutes basic pay?

Basic pay is defined as the gross earnings of the jobholder, disregarding the gross amount of:

  • any commission, bonuses, overtime or similar payments ,
  • any shift premium pay, and
  • any reasonable allowance with respect to:
  • any duty of the jobholder, such as a duty in connection with the role of fire or bomb warden, that is ancillary to the main duties of the jobholder’s employment
  • the cost of relocation of the jobholder to a different place of work
  • the purchase, lease or maintenance of a vehicle
  • the purchase, lease or maintenance of an item, or
  • the delivery of a service to the jobholder.

What are my pension fund choices?

Broadly speaking there are three choices of pension fund.

  • An IFA advised pension fund
  • A master trust pension fund
  • The government’s default fund, NEST

What is NEST?

National Employment Savings Trust (NEST) is an automatic enrolment pension scheme for UK employers of any size.  It is widely criticised as not being good enough and as professional advisers we do not recommend its use unless there is no practical alternative.

What Pension Fund do you recommend?

Experience has shown that if you have a fairly well paid work-force that an IFA advised pension fund will be an appropriate choice.

Equally if will likely be an expensive choice in terms of setup as well as on going costs.

A better choice in a number of circumstances will be a master trust fund.  It is likely that for the majority of business with less than 50 staff that this will be the best choice, if not the only practical choice.  The choice of a master trust fund should also help keep the setup costs to a minimum.

What about different types of employers?   Like Sole traders, Partnerships and Limited Liability Partnerships (LLP)

Sole traders and Partners are self-employed, so they’re unlikely to have to be auto-enrolled. However, any employees of the business are likely to be covered by the requirements.

Complex Structures

If a company/organisation has a complex structure, for example one with numerous PAYE schemes and/or subsidiary companies who they part-own, what will the staging date be for all the companies within that company/organisation?

There are two points to clarify here, who are the contracts of employment between and what is the PAYE structure?

Some employers are part of complex corporate or group structures. To understand how staging will affect these structures, an employer will need to determine who in the group the workers’ contracts of employment are with. This will identify who, for the purposes of the new duties, the employers are within the corporate structure. Once it has been established who in the group is an employer, each employer’s staging date will be determined by what PAYE scheme, or schemes, they use.  If you want advice about this point then please get in touch and ask.

Get In Touch

Jonathan Vowles
Chartered Accountants
114 High Street
Cranfield
MK43 0DG

Tel: 01234 752 566
Fax: 01234 752 577
info@vowles.co.uk

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Get In Touch

Jonathan Vowles
Chartered Accountants
114 High Street
Cranfield
MK43 0DG

Tel: 01234 752 566
Fax: 01234 752 577
info@vowles.co.uk

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