Under the Pensions Act 2008, every employer in the UK must put certain staff into a pension scheme and contribute towards it. Whether you’re a hairdresser, an architect or a partner in general practice, if you employ at least one person you are an employer and you have certain legal duties.
With the deadline for small businesses, a designation which many GP practices fall under, to enrol their employees fast approaching, Croner provides answers to some of the pressing questions.
I am a partner in a GP practice, when do i need to enrol workers by?
Small businesses (those with fewer than 30 individuals in a PAYE scheme on 1 April 2012) must, during 2016–17, automatically enrol their workers into a qualifying workplace pension scheme or the “default scheme”, the National Employment Savings Trust (NEST).
What is my staging date?
Auto enrolment duties apply from a specific date depending on the description of the employer. This is called the employer’s staging date. For example, employers with fewer than 30 individuals, with the last two characters in their PAYE reference numbers 30–37, 6A–6Z, L1–L9 or LA–LZ have a staging date of 1 August 2016. Employers with a single PAYE scheme can enter the scheme reference at www.thepensionsregulator.gov.uk to establish their staging date.
Why should i nominate a primary and secondary contact?
Nominate a primary and secondary contact within the business so these individuals can receive regular information from the Pensions Regulator in the lead up to the actual staging date. In a GP practice the primary contact is likely to be a partner, with the secondary contact the person responsible for the setup and management of auto enrolment, ie. the practice manager. The two contacts should be appointed up to a year before the staging date to create an action plan. This will involve allocating routine tasks and identifying where extra resources are needed.
Who do you class as an “eligible jobholder”?
- “Eligible jobholders” are individuals:
- ·not already in a qualifying workplace pension scheme;
- with qualifying earnings over the “earnings trigger” (£10,000 per year in 2016–17);
- aged between 22 and State Pension Age (60+ for women, 65 for men);
- working under a UK employment contract.
Other workers to consider are:
- “entitled workers” (those aged 16–74, working in UK and earning below £5824 per year in 2016–17) who have the right to join a pension scheme (not necessarily a qualifying scheme), but no right to benefit from employer contributions; and
- “non-eligible jobholders” who may opt in into the pension scheme and receive an employer contribution. Non-eligible jobholders are workers:
- aged 16–21 or above state pension age — 74, working in the UK, with annual earnings above £10,000;
- aged 16–74, working in UK, with annual earnings between £5824 and £10,000.
What are the likely costs of auto enrolment?
Auto enrolment introduces a new definition of pensionable earnings, called qualifying earnings (salary, commission, bonuses, overtime and statutory payments but not benefits in kind).
Minimum contributions are payable on workers qualifying earnings over a lower band of £5824 per year up to an upper band of £43,000 per year in 2016-17. Up to 5 April 2018, there is a total minimum contribution of 2%, of which 1% must come from the employer, with 0.8% payable by the employee and 0.2% in tax relief received from the Government.
There may also be one-off costs to consider, such as setting up the pension scheme, changes to payroll software to manage the auto enrolment process and any independent advice taken, e.g. from a business adviser.
Ensure the payroll system is compatible with employer duties under auto enrolment six months before the staging date, so the right data can be extracted, in the right format, in order to submit the right information to the pension provider, at the right time. Payroll software should flag key age-related dates and where the earnings trigger will be exceeded by a worker in a particular pay reference period, to see if anyone who was not initially eligible for auto enrolment has since become eligible.
If i already have a pension scheme in place, will this cover the requirements?
If a pension scheme is already in place, make sure it is suitable for auto enrolment. Qualifying workplace pension schemes are pension schemes registered with HMRC that meet a minimum standard set out in pension law. If an eligible jobholder is already an active member of a qualifying pension scheme on the staging date, employers only need to provide information about the pension scheme and confirm in writing that it meets the minimum standards.
If your scheme is not appropriate for auto enrolment, choose a different pension scheme. The Government has set up a pension scheme specifically for auto enrolment, called NEST, primarily for use by small employers but any employer can use NEST. Independently reviewed schemes and those listed by industry bodies may also prove suitable. If a new scheme is set up to satisfy auto enrolment duties it should be easy to administer, cost effective, suitable for low earners and work well with current employer processes and systems.
What information do i need to provide to workers?
At the staging date, employers must enrol all relevant workers into the pension scheme. Employers must provide the eligible jobholder with information about what auto enrolment means, their right to opt out and opt back in, and where to find further information about pensions by the end of the “joining window” (within six weeks of the employer’s staging date).
By the end of the “joining window” eligible jobholders must be made active members of a qualifying workplace pension scheme and be issued with relevant pension information by the pension provider.
When do i need to register by?
Employers must complete the registration process within five calendar months of their staging date or face a fine.
What happens if a worker wants to opt out?
After relevant workers have been auto enrolled, employers may receive a request from the individual to “opt out” of the pension scheme. The employer must then stop deductions of contributions and make a refund to the worker of contributions paid to date. The refund date is one month after the date the valid opt-out notice is received.
Any pension contributions deducted from any worker in the three month period from the start date of active membership must be paid to the trustees or managers of the pension scheme by the 22nd (electronic payments) or 19th (cheque payments) of the month after the last day of that three-month period. For example, any pension contributions deducted from 1 July to 30 September must be paid by 19/22 October.
If an employer does not comply with their duties under auto enrolment, the Pensions Regulator can issue compliance notices and penalties. Employers must comply within 28 days of receiving a notice or be faced with a fixed penalty fine of £400. If payment is not made within the specified time (minimum of four weeks from the date notice was issued) an escalating penalty may accrue at a daily rate of £50 to £10,000 (based on number of payees in PAYE scheme), until compliance is achieved. In the most serious cases, the employer may be prosecuted.
Failure to pay contributions by the due date can result in the employer being fined up to £50,000. Employers must not make pension membership part of any selection criteria for recruiting workers; otherwise, a fixed penalty may be imposed based on the size of the employer’s PAYE scheme.