Annamarie Petsis Jones, Director of HR, Opus Energy
Whilst running a business, there often isn’t time to consider admin issues such as employee benefit changes, and these types of tasks can slip down the to do list. However, 2016-2017 will be an important time for small and medium sized businesses. During this period every business employing staff will be legally obliged to offer and contribute to workplace pensions, via auto-enrolment.
For most business owners (let alone SMEs) pensions are a daunting prospect. But the new regulation can also bring certain benefits, and there’s still plenty of time to make sure you’re ready for the change.
What is it?
In order to enhance personal pension funding, the government has changed the rules surrounding pension provisions. In the past there has typically been poor pension take up amongst SME employees, largely due to the need for employees to opt in and the fact that there is no required employer contribution.
The auto-enrolment project first began in 2012, when only large companies were affected. In 2015, small businesses too were expected to be enrolled by April 2017. Any new businesses that were set up after 2012 have slightly longer, extending from between May 2017 through to February 2018 depending on when they were set up.
The scheme has been criticised as a money-pit for SME owners, but it does have hidden benefits for both employers and employees. Most notably, it provides an added benefit for staff without the need to increase salaries or provide other benefits such as health insurance.
Will my business be affected?
The scheme requires businesses created before 2012 to enrol all qualifying UK staff (those aged between 22 and the state pension age, and that earn at least £10,000 a year into a pension scheme and pay contributions into it.
The date by which you have to be compliant is called your “staging date” and is decided by the number of employees you had on the 1 April 2012 and your PAYE reference number. If you’re in doubt, The Pensions Regulator has a handy calculator that can work out your staging date from your PAYE reference. You can find it here.
As a small business owner, it’s important to remember to budget for your staging date. It’s unlikely that your company will have money already set aside for a pension scheme, but there’s no need to panic. Your pension contributions will lower your National Insurance bill because the employee’s contributions to a pension will come out of their gross earnings; automatically lowering the amount they take home each month, and therefore less NI will need to be paid. Contribution levels have also been set quite low to begin with, although by 2018 employers must pay a minimum of 3% of basic pay per employee into a pension scheme.
What do I have to do?
Making sure your business has the most suitable pension scheme in place is essential to offering a quality benefit to your employees, whilst also reducing the costs and time associated with administration.
The Pensions Regulator will be contacting all employers between six and 12 months before their staging date with full instructions on the next steps. If an employer does not offer their own pension scheme they will need to choose one. If they already have one, then this will need to be confirmed by the Regulator to make sure it qualifies within the new guidelines.
Once you reach your staging date you will be legally obliged to:
- Set up and register a pension scheme suitable for auto enrolment
- Assess all staff eligibility at every pay period
- Automatically enrol and make contributions for all eligible jobholders
- Enrol and make contributions for non-eligible jobholders who wish to join
- Manage the auto enrolment: including the joining and opt-out process
- Keep records on how they have fulfilled their responsibilities
What happens if I don’t?
The Pension Regulator has put in place a three-stage process for non-compliance with the new rules:
Compliance/ unpaid contribution notice
This will detail the breach and detail the timescale over which the employer has to put it right. Interest may be added to unpaid contributions.
Fixed penalty notice
If the breach has not been rectified by the given time, a fixed penalty of £400 will be applied.
If you fail to comply with the first and second notice, then a daily penalty will be payable based on the number of employees.
It’s important to make sure you’re prepared for your staging date well ahead of time, as the tasks you need to have completed for auto-enrolment can take anywhere between six and 18 months.
Employees will be able to ‘whistle-blow’ if they feel they have been subject to detriment or dismissal if their employer fails to comply with the auto-enrolment legislation.
Getting your business well prepared for pension auto-enrolment is the best thing you can do and it doesn’t have to be a headache. Using this guide to find out what you need to do and when you need to do it by, you’re already be well on your way to being in accordance with government guidelines.