If you run a small business and have not yet registered for your Workplace Pension Scheme, then don’t ignore the letters from The Pension Regulator anymore.

Auto-Enrolment is the term used by the Government which refers to an employers requirement, no matter what size, to set up a Workplace Pension Scheme into which Employers and Employees should pay a set amount from salaries in order to help people save money for their retirement.

The onus has been placed on the Employer to set up a Workplace Pension Scheme in the name of the Company, then deduct a percentage of salary from their Employees, as well as making a contribution from the Company (it’s similar to the additional percentage paid as Employer NI).  The contribution rates into the Workplace Pension Scheme are as follows:

Contribution rates Employer Contribution Worker’s Contribution
Before 06 Apr 2018 1.0 % 1.0 %
From 06 Apr 2018 2.0 % 3.0 %
From 06 Apr 2019 3.0 % 5.0 %

 

If you are an Employer, you will probably have received correspondence from The Pension Regulator which gives you a ‘Staging Date‘  – this is the date from which you and your Employees need to start contributing into a Workplace Pension Scheme.

First, Set Up A Workplace Pension Scheme

It is advisable to give yourself plenty of time to set up your Workplace Pension Scheme. There are many private pension schemes available and you may want to contact an advisor who can help you find the Workplace Pension Scheme that works best for your business and employees. 

NEST is the Workplace Pension Scheme set up by the government . It’s free for employers and easy to set up.  Go to www.nestpensions.org.uk to find out more.

Whichever Workplace Pension Scheme you go for, you will need to provide various pieces of information to get set up as the Employer such as:

  • Your Employer PAYE Reference;
  • The Letter Code sent to you on your Pensions Regulator Staging Letter;
  • Your Company Details;
  • Details of your employees (addresses, date of birth, national insurance numbers).

Get this process started as soon as you can because  there are some hefty penalties for missing your Staging Date:

Number of Employees Daily Fine
1 – 4  £50.00
5 – 49  £500.00
50 – 249  £2,500.00

If you aren’t sure when your staging date is either ask your accountant for help or head over the Pensions Regulator website to find out your staging date here.

How Does it Work?

Once you have set up your Workplace Pension Scheme, much like PAYE, it is the employers responsibility to calculate, deduct and contribute an amount into the Pension Scheme on behalf of the Employee. The amount of this contribution is based on Qualifying Earnings.

What is Qualifying Earnings?

Qualifying earnings is the name given to a band of earnings you use to calculate pension contributions. For the 2017/18 tax year this is between £5,876 and £45,000 a year. You will pro-rate these figures each time you pay your staff member for each pay period. (Note: these figures, much like other taxes, will be reviewed each year by the Government).

The first £5,876 of their earnings isn’t included in the calculation. For example, if a worker earns £20,000 their qualifying earnings would be £14,124.

You will then multiply qualifying earnings by the required percentage to work out the contribution (currently 1% by the employer and 1% by the employee).

The following should be included when you are calculating a worker’s qualifying earnings for a pay period:

  • their salary or wages;
  • overtime;
  • bonuses;
  • commission;
  • statutory sick pay;
  • statutory pay someone receives during paternity, maternity or any other kind of family leave;
  • adoption pay;
  • holiday pay.

Letting Your Staff Know

As the Employer it is your responsibility to inform your staff members that they have been enrolled in a Workplace Pension Scheme, which scheme you have selected and give them details so they can access details of their account, usually online.

Any employee earning over £10,000 per year must be automatically enrolled in their employers Workplace Pension Scheme.

It is important to help them understand that they are automatically enrolled to be part of the Workplace Pension Scheme however they can voluntarily opt out if they wish.

Declaration of Compliance

Finally, within 5 months of your staging date, you will need to complete a Declaration of Compliance confirming that you as the Employer have met all your legal duties.  This is an online form and can be completed here.

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