As the owner of an SME, you have a range of significant responsibilities when it comes to your employees. A responsibility that you must not overlook is ensuring that your employees are provided with a workplace pension. Since being launched over a decade ago, auto-enrolment has transformed how pensions are managed in the UK, making it easier for employees to save for their future. However, as the owner of an SME, navigating the complex and at times confusing details of auto-enrolment pensions can be a real challenge.
This guide aims to equip you with some essential knowledge on workplace pensions auto-enrolment so that your business is compliant. We also provide you with further resources should you want to find out more.
What is workplace pensions auto-enrolment?
Workplace pensions auto-enrolment is a government initiative introduced to encourage more people to save for retirement. The scheme sets out that employers are legally required to automatically enrol eligible employees into a qualifying workplace pension scheme and make contributions towards their employees’ pension savings.
Who needs to be auto-enrolled?
As an employer, you need to enrol everyone who is eligible and that eligibility is based on a number of factors as follows:
- If the employee are aged between 22 and the state pension age
- They earn at least £10,000 per year
- They are not already in a workplace pension scheme
Non-eligible workers can also be enrolled into your pension scheme if they want to, and you as an employer, will have to pay pension contributions for them. Non-eligible workers are those who meet the below criteria:
- Aged between 16 and 74,
- Earn a minimum £6,240 per year but less than £10,000 per year
- They are aged 16 to 22, or between the state pension age and 74, earning more than £10,000 per year.
There are also a group of people known as ‘entitled workers’ who can be enrolled into the pension scheme should they wish to be, but as an employer, you don’t have to pay pension contributions for them. These people are workers who are aged between 16 and 74 earning less than £6,240 per year.
What are your responsibilities as an employer?
As an employer, your responsibilities under auto-enrolment are clear-cut. If you need to double check or gain further information, the Pensions Regulator is a great resource. Following the below steps will help you to get your responsibilities right.
1. Choose a qualifying pension scheme
You must select a workplace pension scheme that meets the government’s minimum standards. The scheme should be tax-efficient, easy for your employees to manage, and compliant with auto-enrolment requirements. There are numerous suitable schemes in the marketplace so be sure to do some research before committing to your chosen provider.
2. Auto-enrol eligible employees
Once you’ve chosen a pension scheme, you need to enrol your eligible employees automatically. This process involves providing the necessary information to your pension provider, such as employee details and contribution levels. If you outsource your payroll, then your provider can help you with this.
3. Communicate with your employees
You must inform your employees about how auto-enrolment affects them. This includes details about the pension scheme, contribution rates, and their right to opt-out if they choose. It’s important to do this in writing, ensuring that all employees understand their options. Whilst employees can opt-out, they can only do so after they have been auto-enroled.
4. Declare compliance
Within 5 months of becoming an employer, you must declare auto-enrolment pensions compliance online. There is a form which you must complete and can be accessed on the gov.co.uk website. Whilst filling in the form, you need to have various pieces of information to hand and there is guidance online to help with the form if needed.
5. Make contributions
As an employer, you’re required to contribute to your employees’ pension savings. The minimum contribution rate for employers is 3% of an employee’s qualifying earnings. Employees will also contribute a portion of their salary, which is typically 5%, bringing the total minimum contribution to 8%.
6. Keep records
Maintaining accurate records is essential for demonstrating compliance with auto-enrolment regulations. You need to keep records of which employees have been enrolled, how much you’ve contributed, and any opt-out requests. These records should be kept for at least six years and should be readily available in the event of any queries or audit requirements.
7. Re-enrolment
Every three years, you must re-enrol employees who have opted out or ceased contributing to the pension scheme. This process ensures that employees who may have changed their minds about saving for retirement are given another opportunity to participate.
HRX can help with your workplace pensions auto-enrolment
Workplace pensions auto-enrolment is a legal requirement that cannot be ignored. Failure to meet your responsibilities may result in fines being issued by the Pensions Regulator, which if ignored, can increase on a daily basis and could be highly damaging to your business. By understanding your responsibilities and setting up a suitable pension scheme, you can ensure compliance with your legal obligations while also providing a valuable benefit to your employees. If you are ever in doubt, it’s vital to seek qualified professional advice from a financial advisor or from the Pensions Regulator directly so that expert guidance can be given to help you to deal with your specific situation.
HRX can assist you in storing relevant information and documents relating to your pension scheme in each employee’s own record so that if needed you can easily find letters and opt out forms. To find out more about our HR software, book a demo today or why not test it out yourself and sign up to our FREE 30 day trial today.
