Auto enrolment - planning for employers
Workplace pension law has changed and all employers will be expected to place members of staff who meet certain criteria into a qualifying pension scheme and make contributions.
Employers are required by law to automatically enrol all eligible employees into a workplace pension and make a contribution to it. Employers will be given a date by which they must auto enrol their employees – known as a ‘staging date’ – which is determined by the number of employees under a PAYE reference as at 1 April 2012. Should employers have more than one PAYE reference the earliest date will be taken.
Therefore the first action employers should take is to find out what their staging date is and a table providing a full list of staging dates by PAYE scheme size is included within the link.
Although the staging date may seem like some time away, employers need to focus on these now and without delay, to ensure they’re able to meet their auto enrolment responsibilities, to avoid possible penalties, to plan appropriately and to allow proper time for the pension companies to set up everything properly.
Besides knowing when your staging date is, employers also need to review any existing pension arrangements, as it is unlikely they will comply with the new requirements unless they were established recently.
- You need to ensure those responsible for preparing your payroll (internal or external) understand and are able to implement the changes and that the software used is able to cope with the added requirements.
- You need to assess what auto enrolment will mean for your business in financial terms e.g. how much will the contributions be for you and your business.
Once these have been established, you will also need to consider:
- Starting a scheme early and phasing in the employer contributions, possibly linking with any proposed salary increases.
- Offering salary sacrifice terms in order to mitigate national insurance costs.
- Establishing a separate scheme for senior staff members (particularly directors) with alternative terms.
Forward planning will enable employers to fully understand the implications of auto enrolment and cost to their business. It will also allow employers to plan for when these costs are due and provide scope for planning its implementation with greater efficiency.
Auto enrolment should also be factored into other business decisions e.g. if employers expand their business they will need to factor in the cost of eventually providing a 3% employer contribution for the enlarged workforce with effect from the staging date.
It may take time to set up a suitable scheme to meet employer requirements and the sooner the process begins the more time employers will have to consider their requirements and to select the most appropriate scheme for their needs.
Even with professional guidance, it may take a year or more to ensure that employers meet their auto enrolment obligations in a way that will satisfy the needs of the business.
Criteria - eligibility for auto enrolment
Which staff will be included?
All staff members earning over the basic tax allowance (currently £8,105 per annum in the 2012/13 tax year) and aged between 22 and state pension age will need to be automatically enrolled by their employer into a pension plan within three months of joining the company.
Can any other staff member join?
Any member of staff can ask to join the pension scheme, but only those who earn more than the Lower Earnings Limit (LEL) (currently £5,564.00 per annum in the 2012/13 tax year) will be entitled to receive an employer’s pension contribution. If they earn less that the LEL, then an employer can make a contribution, but is not obliged to do so.
If you would like help in determining your staging date or to discuss what auto enrolment means for your business, please get in touch with your usual contact at Mercer & Hole or a member of the financial planning team.
Date: 10th April, 2013
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