Preparing for pension auto-enrolment: what small businesses need to know

Small businesses will soon become subject to auto-enrolment obligations. The precise date will depend on their staging date . This article deals with the main requirements in brief terms only. 

The core employer duty is essentially to auto enrol an eligible jobholder as an active member into a Qualifying Workplace Pension Scheme (QWPS) with effect from the date the jobholder becomes eligible, unless they are already an active member of the employer’s scheme and that scheme is a QWPS . Eligible jobholders can choose to opt out if they do not wish to be auto-enrolled.

Step 1 – identify your staging date

You need to establish your staging date . You can do this by entering your PAYE scheme number on the Pensions Regulator’s (TPR) website. In general terms, new employers set up between 1 April 2012 and 30 September 2017 will have staging dates between 1 May 2017 and February 2018.

Step 2 – assess your workforce

Workers who are eligible jobholders need to be auto-enrolled. The definition of “worker ” is extremely broad. Permanent and temporary employees are covered by it, as are agency workers and apprentices.

Once you have established who is a “worker ”, you will need to determine whether they are an “eligible jobholder ” or a “non–eligible jobholder ”. Only eligible jobholders need to be auto-enrolled, but non–eligible jobholders can choose to opt in to the QWPS . You will have to make pension contributions at the same level for both eligible and non-eligible jobholders enrolled into the scheme.

As well as assessing your workforce at your staging date , you will need to make continuous assessments of the status of your workers on an ongoing basis unless they opt for contractual auto-enrolment.

Entitled workers are entitled to join a pension scheme but that scheme does not need to be a QWPS and you are not obliged to make pension contributions. 

Step 3 – communications

You must provide information about auto-enrolment to your workers . Sample letters are provided on the TPR’s website. 

Step 4 – auto-enrol your eligible jobholders

As a general rule, you must auto-enrol an eligible jobholder in a QWPS with effect from the day the jobholder meets the qualifying requirements (referred to as the jobholder’s automatic enrolment date (AED) ). You have a period of six weeks to make these arrangements. 

You can choose to operate a waiting period of up to three months before the jobholder becomes entitled to be auto-enrolled. 

Step 5 – pay contributions 

The minimum payments that you will have to make to a QWPS depends on the pensionable earnings definition you use. Contributions are being phased in, so the full rates will not apply until October 2018. Employers will pay between 1% and 4%.The legislation setting out the requirements is complex. We recommend employers take appropriate advice on their obligations and on implementation.

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Staging Date: the date an employer becomes subject to auto enrolment duties

Automatic enrolment date: the date an eligible jobholder becomes eligible for auto-enrolment 

Qualifying Workplace Pension Scheme (QWPS): a pension scheme that satisfies the requirements for auto-enrolment. In other words the pension scheme provides the minimum benefits required under auto-enrolment

Worker: an individual who has entered into or works under either a contract of employment or any other contract under which the individual undertakes to do work or perform services personally for another party to the contract.

Eligible jobholder: a worker who:

• works (or ordinarily works) in Great Britain under a contract
• is aged at least 22 years
• is paid qualifying earnings by an employer in a relevant pay reference period which are above the earnings trigger for auto-enrolment.

Non–eligible jobholder: a worker who EITHER:

• is aged between 16 and 74
• works (or ordinarily works) in Great Britain under a contract
• is paid qualifying earnings by an employer in a relevant pay reference period which are below the earnings trigger for auto-enrolment.

OR:

• is aged between 16 and 21 or state pension age and 74
• works (or ordinarily works) in Great Britain under a contract
• is paid qualifying earnings by an employer in a relevant pay reference period which are above the earnings trigger for auto-enrolment.

Entitled worker: a worker who:

• is aged between 16 and 74• works (or ordinarily works) in Great Britain under a contract• Does not have qualifying earnings payable by the employer in the relevant pay reference period.

Qualifying earnings: for the 2016/17 tax year, qualifying earnings in a 12-month pay reference period are an individual's earnings between £5,824 and £43,000 and is widely defined. The qualifying earnings in the relevant pay reference period must be above the earnings trigger for automatic enrolment which in the 2016/2017 tax year is £10k. A pay reference period generally means the period in which a person is paid a regular wage or salary.