What Does Auto-Enrolment Mean For Employers?
While the law for automatic enrolment was first introduced for big businesses back in 2012, the next few years are when we will start seeing the real effects for smaller businesses. By 2018 all employers must not only offer a workplace pension as a benefit for employees, but they must also automatically enrol all employees into the scheme. But what impact will that have on smaller businesses and how can you prepare for the changes in advance?
Auto-Enrolment At A Glance
By 2018 all employers, no matter how small, will be required to enrol staff meeting certain conditions into a pensions scheme and contribute to that scheme. This includes all employees aged over 22 (but before pension age) earning over £8,105 a year. Employees enrolled into the scheme will be able to opt out if they wish, but if they do nothing they will automatically be enrolled. All staff that earns over £5,564 who are not automatically enrolled for any reason can ask to join the scheme. In these cases, the employer must still contribute and they must inform their staff of their right to join the scheme. Employers will all be given an individual staging date for full enrolment compliance based on the number of staff on their payroll. If your company is not fully compliant with auto-enrolment regulations by your staging date, you will incur hefty and ongoing fines. Auto-enrolment is not something your business can avoid, so you need to consider a few things before your staging date comes;
Take a look at what the cost would be to you if all of your existing employees opted to remain in the scheme. How much would you need to set aside to pay for it? How many of your internal resources would be needed to implement and manage the scheme with that many employees? Would you be better off outsourcing the implementation and ongoing management? Are there any other options available to you to help reduce the cost of implementation and continued administration?
Do you actually know what your staging date is? Do you know what you need to do and by what date, in order to be compliant? Is it easy for you to identify who needs to be included in auto-enrolment, or do you need to do some prep work to figure it out? Are you aware of the rules regarding recruitment that are already in force? Finally, you must analyse all of the requirements and decide whether you wait until your staging date to implement, or whether you implement early.
Now consider things from your employees point of view. Is there anything your business can do in order to help your employees understand and appreciate the benefits of joining the pension scheme? You could stage a training day or circulate a flyer explaining the benefits to them. Consider also if any of your employees will lose ‘enhanced protection’ by being part of the scheme and if so discuss this with them to make them aware of all of the options.
Many businesses will already have some form of the pension scheme in place on an opt-in basis for their employees. If this is the case, now is the time to evaluate your current scheme and see if it is fit for purpose with the new regulations. Would your level of contribution need to increase in order to meet the regulations? Or perhaps your pension contributions are quite high due to the low number of members and you would need to lower this in order to be able to contribute for every staff member.
What Do I Have To Pay?
Thankfully, the rules on this are very clear. If your scheme’s contribution level is based on total earnings between £5,564 and £42,475, a total of 2% must be paid from the starting date, at least 1% of which must come from the employer. This will increase to 5% (2% from the employer) in October 2017 and again to 8% (3% from employer) in October 2018. You could certify your scheme for basic pay instead of total pay, which would mean that by October 2018 9% would need to be paid in, with at least 4% coming from the employer.
If you are an employer that is struggling to understand their obligations for auto-enrolment, or you just need help getting everything ready, you are not alone. Many businesses are reaching out to companies like eBOS to help them prepare for their staging date and process the enrollments smoothly. Planning and implementing in advance can actually save you a lot of time, hassle, and money. It also provides reassurance, as the risks are much lower if you implement early, should something go wrong. For more information about how we can help make auto-enrolment a pain free experience for you, get in touch with eBOS today for your free consultation.