Workplace pensions schemes have been mandatory for large companies for quite some time, and with the same legislation being rolled out to almost every small business in the UK it’s important that you know exactly what you need to do to be compliant. Read on to find out more.
What is workplace pensions auto-enrolment?
Workplace pensions law in the UK has changed. Every employer with at least one person working for them (with very few exceptions) now has to automatically enrol staff members who meet certain criteria into their workplace pensions scheme. They also have to make a contribution towards the employee’s pension pot.
So, if you don’t currently have a scheme in place, you need to start thinking about setting one up.
However, slightly worrying official statistics show that nearly half of all small employers don’t realise that this new legislation affects them and that they will have significant action to meet by their workplace pensions obligations and the government deadline for implementation.
Deadlines for implementing workplace pensions auto-enrolment varies, you can check yours here.
Do all companies have to offer a workplace pension scheme?
Every employer now has an obligation to put a workplace pension scheme in place no matter what kind of business they run. This includes not-for-profit organisations and people employing staff such as a nanny or a cleaner. One-man businesses are probably one of the few exceptions, which means that if you’re the only director and worker in your business, then you probably don’t have to worry about offering yourself a workplace pension, although it would make sense to have some kind of pension provision in place to see you into retirement
Who do employers have to offer workplace pensions to?
Employers must automatically enroll workers into a workplace pensions scheme if they:
- are aged between 22 and State Pension age
- earn more than £10,000 a year
- work in the UK
Employer, employee and government contributions
There are different types of workplace pensions scheme that employers can implement which we won’t go into here, but you can find out more information at GOV.UK. The government has set minimum contribution levels for employers, employees and the government, and depending on which workplace pensions scheme you choose, you and/or your employee could decide to contribute more than the minimum.
- The minimum the employee pays – 0.8% of your ‘qualifying earnings’ rising to 4% by 2018
- The minimum the employer pays – 1% of your ‘qualifying earnings’ rising to 3% by 2018
- The minimum the government pays – 0.2% of your ‘qualifying earnings’ rising to 1% by 2018
The good news is that for tax purposes workplace pensions auto-enrolment contributions are treated no differently to other types of pension scheme contributions
Quick example: You pay contributions into a defined contribution pension scheme for your employees. Each payday:
- the employee puts in £40
- the employer puts in £30
- the government gives £10 tax relief
A total of £80 goes into the employee’s pension each payday.
A point to note is that higher rate tax payers should claim additional tax relief through your self-assessment tax return if you complete, or by asking HMRC for a tax code adjustment.
The effect of workplace pensions auto-enrolment on your payroll systems
With the imminent arrival of workplace pensions auto-enrolment there’s a little more to think about than just your contribution levels and tax relief. This legislation also creates a major adjustment to your payroll procedures. So, if you currently use payroll software then you should speak to your software provider about an auto-enrolment module update for your system.
Additionally, if you currently outsource your payroll administration it’s your responsibility to ensure that your company is auto-enrolment compliant before the deadline for launching your company scheme. This will help your pension administration is integrate smoothly with your payroll system, and will save from a nasty surprise from HMRC in the future.
Our advice is to get your ducks in a row well in advance of your deadline for implementing workplace pensions auto-enrolment procedures:
- Check your deadline for implementation here
- Speak to your payroll software provider and payroll administrator about updating your software with an workplace pensions auto-enrolment module. Remember to do this even if you outsource your payroll tasks as it’s your responsibility.
- Make sure you know which employees need to be enrolled on your workplace pensions scheme.
If you’re unsure about how to implement your workplace pension scheme or would like to talk to us about your payroll requirements then get in touch with Stephen Usher on 0141 418 6550 or firstname.lastname@example.org