Engaging the right people is a critical element of building an early stage business, but do not delay compliance with employment and pension obligations. We have already considered your obligations under employment laws in our previous article “Launching a start-up but feeling left in the dark?”, and this sets out your obligations around auto-enrolment.
The idea behind automatic enrolment is simple – all UK workers should be saving in a good quality pension arrangement unless they actively choose not to. Unfortunately, the actual requirements are more complex than this would suggest. What you pay, and the amount of time you spend on setting up automatic enrolment will depend on various factors, including how you run your payroll and which pension scheme you choose.
This guide summarises what you have to do, and the additional costs you may face.
Understand your duties
If you intend to engage staff, make sure you prepare early for automatic enrolment to avoid unnecessary costs.
You will need to:
- enrol workers who are eligible jobholders into a qualifying pension scheme;
- invite workers who are non-eligible jobholders to join a qualifying pension scheme;
- provide access to a pension scheme to all other workers;
- pay minimum contributions into the pension scheme on the workers’ behalf;
- advise your workers of their pension options;
- re-enrol eligible jobholders who have left the pension scheme every three years;
- certify your compliance with the Pensions Regulator.
The Pensions Regulator has an online guide that defines all of the relevant terms, identifies the exemptions that may apply, and sets out the steps to take in order to complete automatic enrolment as simply and quickly as possible. Click here to read the guide. Research suggests that small employers with between one and four staff members usually spend a total of about 15 hours overall in preparing for automatic enrolment.
Choose a scheme
Start-up businesses will generally opt to establish a group personal pension arrangement in order to minimise administration. However, there are several bespoke arrangements on the market that are designed to comply with automatic enrolment requirements.
The Pensions Regulator has prepared a checklist of issues to consider when choosing a pension scheme, click here to read.
You may wish to seek advice or support from an accountant, bookkeeper, payroll provider or financial adviser when choosing your pension fund. These advisers will be able to assist you not only with establishing your chosen pension arrangement, but also with the issue of statutory communications to your workforce, and with ongoing automatic enrolment compliance.
Automatic enrolment schemes require minimum contributions of 8% qualifying earnings to be paid into the pension scheme. This includes a minimum employer contribution of 3%. However, it is possible for the employer to pay more than this, with the member paying the remaining amount.
Contributions are usually paid via the employer’s payroll system. You will need to find out what automatic enrolment tasks the system can help you with, and whether it will provide all the information that your pension scheme provider needs.
It is not necessary to receive specific written consent from the worker to deduct statutory member contributions following automatic enrolment, but consent is required in all other circumstances. It is therefore sensible to expressly refer to the contributions that will be payable in the worker’s contract.
If you are using a group personal pension scheme you will need three separate agreements to cover contributions:
- direct payment arrangements between the employer and the worker to deduct contributions and pay the provider;
- an agreement between the employer and provider for the employer to pay at least minimum employer automatic enrolment contributions for the worker; and
- unless the employer is paying the full 8% of contributions, an agreement between the provider and the worker to pay the shortfall.
Your adviser will address these requirements when assisting you in establishing the scheme.
Communicate with the workers
Automatic enrolment relies on a network of notices going to workers and other parties. This needs to be constantly monitored as different requirements are triggered each time a worker enters a different category. To avoid constant monitoring some employers contractually enrol all workers regardless of their status. If a member has been contractually enrolled in a pension scheme, he will need to consent to the deduction of contributions.
It is possible to defer the automatic enrolment process in respect of a worker for a period of up to three months and this option requires specific notice to be issued to the relevant worker. The deferral process can be used to avoid automatically enrolling short-term or seasonal workers. It can also assist in aligning payroll dates for the payment of contributions.
Enrolment and opting out
Having set the automatic enrolment date, and assigned each worker to a relevant category, it is necessary to automatically enrol the eligible jobholders and advise the workers of their rights. You must make an online declaration of compliance with the Pensions Regulator within 5 months of automatically enrolling your workforce.
Workers cannot be compelled to remain active members of a pension scheme and can opt-out of the scheme at any time by issuing a notice to the trustees or scheme provider.
Certification and ongoing compliance
Automatic enrolment is a continuous responsibility – your duties do not end after the initial enrolment date.
Each time you pay your staff you must monitor changes in their age and earnings to see if they need to be put into your scheme.
Every three years you must re-enrol any eligible jobholders who have left your scheme and certify your compliance with the Pensions Regulator. You will also need to continue paying into your pension scheme on behalf of your workers, manage requests to join or leave the scheme and keep records.
Although you can undertake the ongoing duties yourself, you may decide to outsource them to an external adviser or provider. The average monthly cost of outsourcing compliance that was reported to the Pensions Regulator ranged from £42 for employers with 1-4 members of staff, increasing to £100 for employers with 5-9 employees.