Why micro and small businesses would be foolish to ignore ‘Automatic Enrolment’

5 years ago

Neilson Watts (Product Manager, Sage One Payroll)By Neilson Watts (Product Manager, Sage One Payroll).

I’m a child of the 80’s who loved the A-Team and so to take the words out of B.A. Baracus (aka Mr T’s) mouth…”I pity the fool” that ignores the changes in workplace pensions and the impact Automatic Enrolment can have on your business if you ignore it.

So what is ‘Automatic Enrolment’?

You may be familiar with the concept of starting a new job and after a period of time having the opportunity of joining the company pension fund? Well, it’s about to be turned completely on its head and you will be naive to believe it only impacts medium to large size businesses.

With a phased introduction (starting back in October 2012), EVERY employer in the UK (who employs staff) will be required to provide employees access to a workplace pension scheme, automatically enrolling them into this scheme whilst also being responsible for making a contribution to their employees’ pension fund.

So why introduce Automatic Enrolment?

The UK has an ageing population and with people living longer, the government has concerns that not enough people are saving for their future retirement aspirations.

Workplace Pension Reforms will enable employees to start saving but all the responsibility and administration of automatic enrolment will be with the employer to comply.

The Pensions Regulator is responsible for educating, communicating and enforcing automatic enrolment.

So when does Automatic Enrolment impact smaller businesses?

The Pensions Regulator will write to you and inform you the date you must start complying with automatic enrolment. This is known as your ‘Staging Date’ (staging dates are based on the size of the business as at 1st April 2012).

For employers with 30 or less employees, your business will start to be phased in from 1st June 2015. You can check your ‘Staging Date’ on The Pensions Regulators Staging Date Tool (note: you will need your PAYE reference).

So what are my responsibilities as an employer?

Take a deep breath…

Once you know when your business must comply i.e. start staging, you will need to carry out an assessment on your employees (or ‘Workers’) to determine whether they are an ‘Eligible Jobholder’ who must be automatically enrolled in to your pension scheme; or an ‘Non-Eligible Jobholder’ who have a right to opt in or those who are ‘Entitled Workers’ who have a right to join.

Following this, you will need to either check that your existing pension scheme (if indeed you have one) meets the criteria for a qualifying pension scheme or alternatively you must find one. It’s then going to be your responsibility as an employer to communicate to your employees to explain what Automatic Enrolment is and what it means to them to be automatic enrolled.

Once you have automatically enrolled those employees that meet the right criteria, you will need to register with The Pensions Regulator, communicating and sharing specific information with them whilst keep records for up to 6 years. The employee is free to choose whether they remain opted in, or whether they wish to opt out.

Oh I and almost forgot…it is also your responsibility to make a minimum contribution to your employees’ pension. It will start at 1% and over time will increase to 3% by 2018.

What happens if I ignore Automatic Enrolment?

The Pensions Regulator has a range of enforcement options with fixed penalties for £400 and escalating penalties with a daily rate of £50 to £10,000 depending on the number of staff you employ.

It sounds quite simple, doesn’t it…? ;o)

Well, I’ve got over 15 years of payroll experience and my simple answer is “no!” And this is why I urge you to put aside some time now to get yourself prepared. The Pensions Regulator recommends that you start planning for automatic enrolment 12 months prior to your staging date!

So what is Sage One doing with Automatic Enrolment?

We’re making it our mission to help you understand and help your business prepare for automatic enrolment. We’re making great progress in developing Sage One Payroll to include automatic enrolment functionality which we will phase in seamlessly over the coming months with no software to install or upgrades to purchase. We’ll help make automatic enrolment simple for your business.

So, look out for more blogs over the coming months relating to automatic enrolment, where it’s my aim to break it down into small, manageable chunks!

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If you’re looking for low-cost payroll software that makes complicated legislation easy, sign up for a free 30 day trial of Sage One Payroll or buy it now from just £5 per month at http://uk.sageone.com/payroll/