13 Mar 2013

Auto-enrolment: Practical Straightforward Guidance for Employers

Auto-enrolment: Practical Straightforward Guidance for Employers

Employment Trainee Solicitor, Elaine Stuart, provides a practical look at auto-enrolment for Employers.

Employment Trainee Solicitor, Elaine Stuart, provides a practical look at auto-enrolment for Employers.

New laws came into force on 30 June 2012 that will eventually require all employers in the UK to automatically enrol eligible employees into a pension scheme. The new employer duties are being implemented month by month over a five and a half year staging period with larger employers required to comply before smaller ones.

What are Employers required to do?

First of all, they will require to identify whether their employees are eligible. Eligible employees are defined as ’jobholders’. This is a worker who meets the following three conditions:

  • They are aged between 16 and under 75;
  • They are working in the UK under a contract; and
  • They are paid qualified earnings by an employer in a relevant pay reference period (this being gross earnings received by a worker in a pay reference period - in the 2013/14 tax year, qualifying earnings are between £5,668 and £41,450).

However, not all jobholders will require to be auto-enrolled. Only those who are at least 22 and have not reached State Pension Age and have earnings that exceed the ‘earnings trigger’ in a relevant pay reference period will require to be auto-enrolled.

Jobholders have the statutory right to opt out and further workers who do not meet the criteria of eligible employees are entitled to opt into the auto-enrolment scheme.

Once this review has been completed, employers must register with the Pensions Regulator within six months of the date that they are required to start the scheme. This will involve employers providing details about jobholder numbers, auto-enrolment numbers and the types of pension schemes to be used.

Employers can use their existing pension schemes if it meets the criteria. If you do not operate a company pension scheme or your existing once does not meet the criteria, employees can be enrolled into the National Employment Savings Trust (NEST) which has been introduced by the Government.

By October 2018 Employers will be required to contribute a minimum of 3% of each employee’s eligible earnings into a pension. Employees will be required to pay a personal contribution of 4% with a further 1% tax relief also added. This amounts to a minimum 8% contribution.

Alternatively as an alternative to using the qualifying earnings definition, Employers can choose to use certification.. There are three different levels of certification contribution available at 7%, 8% and 9% with different definitions of pensionable salary. The certification option may prove easier to administer and more flexible for some businesses to use

Employers will be required to keep records on auto-enrolment numbers, opt-in and opt-out polices and contribution levels.

Employers will be required to re-register and re-enrol jobholders every three years.

Employers must be aware that the Pension Regulator will take action should they not comply with their duties. Any failure to remedy a breach that is identified could result in a fixed penalty of £400 being issued. Persistent breaches could result in an employer being issued with penalties of between £50 and £10,000 per day.

Detailed guidance and information relating to auto-enrolment can be found here, our Corporate Services Department’s  ‘Guide to auto-enrolment and employer duties’

Elaine Stuart, Trainee Solicitor


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