By Neilson Watts (Product Manager, Sage One Payroll).
One of the key obligations under Automatic Enrolment is providing a qualifying workplace pension for your employees whilst making an employer’s contribution and ensuring the contributions are paid across to your pension provider.
So what are the minimum contributions?
Ordinarily the contributions you make to a pension are determined by the ‘Scheme Rules’ of the pension provider but if you’re using one under Automatic Enrolment there are minimum contributions you and your employee must make.
Minimum contributions are being gradually phased in and can be made on a fixed amount basis e.g. £50 per month or as a percentage of earnings but must meet the following minimum percentage of earnings.
|Date||Employer minimum contribution||Total minimum contribution|
|Now until 30th Sept 2017||1%||2%|
|1st Oct 2017 to 30th Sept 2018||2%||5%|
|1st Oct 2018 onwards||3%||8%|
Currently the total of employees and employers contributions should be no less than 2% where the employer must contribute a minimum of 1%. If you or your employee wishes to contribute more than the minimum amounts, you can do so.
What types of payments should I calculate the pension contributions on?
Payment types would normally include basic wages or salary, commission, overtime, bonus or statutory payment such as sick and maternity pay.
As a business you can choose whatever definition of pay to calculate contributions. This can be banded qualifying earnings or an alternative defined by the pension scheme rules.
Plan ahead and workout how much it’s going to cost your business
So you’ve got to provide a workplace pension, you need to assess your workforce and determine who must be automatically enrolled into it, some workers can choose to opt in…and there are others who can choose to join the pension…but how much will it cost your business?
Cash flow is the heart beat of every business and without keeping your finger on the pulse of it puts your business at serious risk. So why not plan ahead and using the table above and a spreadsheet estimate what it could cost your business over a month, quarter or financial year. It may even be more prudent to consider working out what they would be from 1st October 2018 where the minimum employer contribution.
The Pensions Regulator has created a handy tool to help you estimate what these will be at www.thepensionsregulator.gov.uk/employers/tools/employer-contributions.aspx
What happens if I don’t deduct pension contributions or pay on time?
The Pensions Regulator are quite clear that that from your staging date you should be deducting at least the minimum contributions and ensure you are paying your pension contributions to your pension provider on time. Failure to do so puts your business at risk of a fixed of £400!
You can find out more information on minimum pension contributions from www.thepensionsregulator.gov.uk/employers/contributions-funding.aspx
The date your business needs to start complying with Automatic Enrolment is known as your ‘Staging Date’ and is based on the number of employees in your PAYE scheme at 1st April 2012.
Businesses with 30 employees or fewer will start to be phased in from 1st June 2015 and over the next two years it’s expected that 1.3 million small and micro businesses will start ‘Staging’.