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


5 mins

Posted on 31 Oct 2016

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.

The articles published on this website, current at the date of publication, are for reference purposes only. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your own circumstances should always be sought separately before taking any action.