Sage Guide to AUTOMATIC ENROLMENT Everything you need to know about Workplace Pensions: Automatic Enrolment 1
CONTENTS INTRODUCTION What is Automatic Enrolment? 01 SEVEN STEPS TO AUTO ENROLMENT? 02-05 CUSTOMER STORIES 06-07 AUTOMATIC ENROLMENT AND TEMPORARY STAFF Who must be enrolled? How much time will it take to manage? What should I do when staff leave? 08-09 AVOIDING THE PITFALLS HOW TO MANAGE AUTOMATIC ENROLMENT ONGOING ASSESSMENT Triennial re-enrolment 10-11 12-15 16-19 Opts outs and contribution refunds Postponement AFTER YOUR STAGING DATE THE TOP TEN AUTOMATIC ENROLMENT TERMS AND THEIR DEFINITIONS 20-21 22-25 2 3
INTRODUCTION What is Automatic Enrolment? Automatic Enrolment is a Government initiative that means employers are legally required to help employees save for retirement. All eligible employees automatically become members of a qualifying pension scheme with a high enough level of contribution. This means new responsibilities for the employer such as: Workforce assessment Provision and Automatic Enrolment into a qualifying scheme Facilitating opting out and refund Record keeping Awareness of Automatic Enrolment is high with over 80% of businesses now having an understanding on what the pensions legislation is all about. Businesses know what it is. But if you need a quick reminder, here are the key facts: Companies with one or more employees will need to enrol their workers in a pension scheme Employees need to be enrolled in the scheme if they are: Aged between 22 and state pension age Earning more than 10,000 a year Working in the UK Employer contributions are: 1% of qualifying earnings until September 2017 2% until September 2018 3% from October 2018 The workplace pensions scheme came into force in 2012 for larger corporations. Between 2015 and 2017. If your company is one of these businesses, you ll need to be ready. We ll take you through the steps required, help you to understand how the legislation related to workers who have irregular contracts and explain how to manage the scheme in your business. The workplace pension scheme is regulated by: Eligible employees that must be enrolled but can opt-out if they choose: Current opt-out rates are estimated to be 10-12% 4 1
The process for managing Automatic Enrolment is similar, regardless of whether you have temporary or permanent staff. Here are the key steps you need to take to ensure you will be compliant. Chapter 01 SEVEN STEPS TO AUTO 01. Know your staging date It s essential that you understand when you need to launch the pension scheme in your business. The Pensions Regulator has an online tool which lets you find out your staging date. Find out when the legislation will apply to your busines > 02. Assess your workers 03. Work out your costs ENROLMENT You need to know who is eligible under the scheme. Remember, workers are eligible if they: Are aged between 22 and state pension age Earn more than 10,000 a year Work in the UK The Pensions Regulator calculator has a different purpose to ours. Could add: The Sage Auto Enrolment calculator can also help you calculate the potential time and cost savings from using software versus manual processes. Visit the Sage Auto Enrolment calculator > Don t forget to check with any employment agencies to ensure that they have a scheme and are enrolling your agency workers. 2 3
Chapter 01 04. Review your pension arrangements If you have an existing pension scheme for your workers, you may wish to consider enrolling all eligible jobholders into this scheme. To do this, your existing scheme will need to qualify as an Automatic Enrolment scheme we could add section here from nest. To be a qualifying scheme, minimum contributions must be made or it must provide a minimum rate at which benefits will build up. A scheme suitable for Automatic Enrolment must also not: Impose barriers to joining the scheme, such as probationary periods or age limits for members Require staff to make an active choice to join or take other action prior to joining Require the provision of extra information in order to stay in the scheme 05. Communicate with your employees You must provide each worker with information in writing about the workplace pension scheme and how it affects them. You must give them information that is specific to their circumstances and explain how they can opt out if they want to. You need to do this within six weeks of your staging date. If you have software to manage Automatic Enrolment, you may find that it offers the ability to generate these letters or emails. Alternatively, The Pensions Regular has template letters available. Find Out More > 06. Automatically enrol your eligible jobholders 07. Register with The Pensions Regulator There is a process that you will need to follow in order to make an eligible jobholder a member of an Automatic Enrolment pension scheme. Certain information about your eligible jobholders will also need to be supplied to pension scheme managers for example at specific points in the process. Once you ve set up your scheme, you need to register online with The Pensions Regulator and provide information about how you have compiled with the legislation. 4 5
We love Sage 50 Payroll and the Pensions Module but don t just take our word for it. Take a look at some of our customer stories Elevation Networks Chapter 02 CUSTOMER Temi from Elevation Networks Trust talks to us about how Sage 50 Payroll helps them through their payroll processes and how Sage has helped with Auto Enrolment preparation. STORIES Oaklands Care Home Tim Maloney, CEO of Oaklands Care home talks to us about how valuable Sage 50 Payroll is to his business. 6 7
If you have workers who are on irregular contracts or are employed through an agency, it s essential that you understand how Automatic Enrolment applies to them. If you fail to enrol staff who are eligible, you may face penalties. Chapter 03 AUTOMATIC ENROLMENT AND TEMPORARY STAFF Who must be enrolled? Automatic Enrolment applies to all employees, regardless of their contract. This means that eligible employees who work for you temporarily, including casual staff, seasonal workers and part-time workers, must all be included. Workers on zero hours contracts are also likely to be eligible. However, you ll need to pay close attention to their salary for each pay period, as it s likely to fluctuate and may affect whether they would be classed as eligible jobholder. Agency workers are also entitled to join a workplace pension scheme. However, if these workers are paid by the agency, rather than your business, the agency will also have responsibility for Automatic Enrolment. For all staff, you can postpone enrolment into the pension scheme by up to three months. This can be useful if you have high turnover or have temporary or casual staff on short contracts, as it means you wouldn t have to provide them with a pension. As with any legislation, if you have any questions or need specific information relating to your company, do seek specialist advice. How much time will it take to manage? What should I do when staff leave? 76% of companies that have implemented Automatic Enrolment saw an increased demand on their time. Our research shows that the average time to manage Automatic Enrolment is 3.14 hours a month. However, businesses with irregular contracts typically take 3.62 hours to manage the scheme, compared to 2.69 hours for those with regular contract workers. But there is a way to make this easier. We ll offer advice about how to manage the scheme later in this guide. If you employ workers on temporary contracts, it is inevitable that you will have a high turnover of staff. The workplace pension belongs to the worker, no to your company, so when they leave they have a number of options: 1. They can leave the money in the scheme and take the pension when they reach the specified age. They can join another scheme if they get a new job. 2. They can continue to pay into the scheme 3. If they have been in their job for less than two years, they may be able to get a refund on what they ve contributed. This will depends on the pension scheme. 8 9
Thousands of companies have completed Automatic Enrolment but some have faced challenges along the way. Here are some of the common pitfalls and how to avoid them. Leaving it too late Not getting the right support Chapter 04 AVOIDING THE PITFALLS Some companies underestimate how long they need to allow to get ready. The Pensions Regulator recommends allowing 12 months to complete the process. Penalties for missing deadlines or failing to pay contributions range from a 400 fixed penalty to escalating penalty notices of up to 10,000 a day, so it s essential that you re ready by your staging date. According to The Pensions Regulator, so far they have issued 424 fixed penalty notices and 5 escalating penalty notices. Starting early not only helps you avoid the costs of any penalties, it also lets you research pension scheme options and understand how the changes will affect your business and your workers. Not having the right data Recent research shows that nearly half of business owners without a workplace pension scheme are still unclear about their responsibilities with a quarter not confident their business can cope. Some businesses plan to approach their accountant for support, which may be a good starting place. However, not all accountants offer support around Automatic Enrolment, so do be sure to ask early. The Pensions Regulator has a wide range of information for employers available on their website. You could also approach an Independent Financial Advisor to ask about the best way to implement the scheme in your business. Your payroll provider should be able to help too. For example, at Sage we offer a range of support, from videos and guides to timelines and checklists. Find Out More > In order to evaluate your workforce, you ll need to have data about their age, their earnings and whether they d like to opt out of the scheme. Your payroll system should be able to provide the right information but this can be more challenging for companies who outsource their payroll, manage it manually or who have workers on irregular hours. Getting the right software makes it easier to get the information you need to evaluate your workforce. It can also help you to manage to scheme moving forward. 10 11
Once you understand the process and the timescales, the next step is to make sure you have the right resources. Whether you normally outsource your payroll or run it in-house, it s essential that you can manage Automatic Enrolment and keep the right records. Chapter 05 HOW TO MANAGE AUTOMATIC ENROLMENT If you outsource your payroll, speak to your provider Some payroll bureaux and accountants who manage payroll won t be offering services to manage automatic enrolment - so it s essential you ask early. If they will be offering a service, ask for details about what they provide and the costs of doing so. You may find it increases your fees. You ll also need to ensure they understand how the legislation applies for workers with irregular contracts or temporary staff. Ask them how they will need to manage information about opt outs, eligibility and other factors that influence pension contributions. Even if you outsource the service, it s still your company s responsibility to ensure the right information is recorded and all eligible workers receive the correct contributions or opt out if they wish to do so. If your current payroll provider cannot provide the right service, you ll need to look for an alternative. 12 13
Chapter 05 Look for software to help There is software available that can manage your payroll and automatic enrolment needs. If you currently outsource your payroll, then it may be worth looking to see if it would be easier and more cost-effective to manage your payroll and workplace pension together. When you re evaluating the software, do check that: It s right for your needs and makes it simple to manage payroll for employees on a range of different contracts. The software can calculate how much you and your employees will need to pay in pensions contributions. You can automate as many tasks as possible - not just for payroll calculations like statutory sick pay and maternity leave but also automatically sending the right data to your pension provider. It is compliant with RTI and lets you keep the data needed for automatic enrolment, including salaries and opt-outs. For automatic enrolment, certain data must be kept for six years. It s provided by a reliable, trusted company who has experience. At Sage, we offer a complete solution through Sage 50 Payroll and our Pensions Module. This lets you manage your payroll and automatic enrolment quickly and cost-effectively. It makes it easier to assess your workforce, enrol your workers and automatically creates the right data files in the right format. It stores a record of the data and payment submissions and also lets you manage opt-outs. The software is compliant with RTI and automatic enrolment and is trusted by many businesses. In fact, one in three people are paid using Sage. If you d like to compare costs between outsourcing, manually managing your payroll and using Sage software. Check out our Calculator > Pensions Data Exchange New functionality for the Pensions Module, called Pensions Data Exchange, allows customers to send and receive pension data to their pension provider in just one click, reducing the administrative burden, overheads and potential errors associated with administering Auto Enrolment. It also dramatically eases the pension set-up process, so saving further time, effort and any later correction handling. Find out more > 14 15
Identifying your eligible jobholders and enrolling these individuals onto a qualifying pension scheme is one distinct activity of Automatic Enrolment. In addition to this, there are also ongoing responsibilities and key activities. The employer should assess circumstances for employees on an ongoing basis, to determine where circumstances have changed and enrolment to a qualifying pension scheme is due. Chapter 06 ONGOING ASSESSMENT These circumstances could include but are not exhaustive of: 1. The deferral date for the worker if using worker or eligible postponement 2. The first day of employment 3. The worker s 22nd birthday 4. The first day of a pay reference period Each event is considered to be an assessment date, the date on which the employer must assess the status of the worker to establish if they are considered to be an eligible jobholder and must be automatic enrolled in a qualifying pension scheme. 16 17
Chapter 06 - On-going Assesment Triennial re-enrolment The employer must conduct a review every 3 years to automatically enrol or re-enrol any employees who at that date are not an active member of a qualifying pension scheme or who have previously opted out of the qualifying pension scheme. This review date is a global date for all employees and is not specific to the circumstances of each individual. Opts outs and contribution refunds The ultimate goal is for every employee to be a member of a qualifying pension scheme and actively saving for their future and retirement. For certain individuals this isn t always possible and the time of Automatic Enrolment may come at a difficult period or they may have alternative methods of saving available to them. For such individuals, there is the option to opt out of a pension scheme. To opt out from the pension scheme, the jobholder has one month from the later date of either: 1. The automatic enrolment letter sent from the employer 2. Active membership of the pension scheme. On completion of the-opt out process, the employer must stop deducting contributions. Postponement Postponement is an additional flexibility for an employer that allows them to choose to postpone automatic enrolment for a period of their choice of up to three months. Postponement can only be used for a worker on certain dates: The employer s staging date, in respect of any workers employed on their staging date The first day of employment, in respect of any worker starting employment after the employer s staging date The date a worker employed by them meets the criteria to be an eligible jobholder after the employer s staging date 18 19
Once you ve enrolled your employees, you still have certain responsibilities. There are two key things that you need to do to remain compliant. Keep the right records Chapter 07 AFTER YOUR STAGING DATE It s essential that you have the right information about your enrolled workers, their status within the scheme and the contributions that have been made. You also need to keep records about who has opted out of the scheme and about the scheme itself. The data can be stored by your business or by a third-party who administers your scheme. This would include a payroll bureaux who manages the scheme for you and the pension provider themselves. The Pensions Regulator has full details about the data that you need to store and the time you need to keep the information. Find Out More > Make contributions Once you reach your staging date, you must calculate and pay contributions to the pension scheme. You must make the deductions and payments on behalf of your employees and also make the employer s contributions too. It s essential that these contributions are correctly calculated. Don t forget: f you are following the minimum contribution levels these will change over time. 1% 3% September 2017 October 2018 20 21
01. Jobholder 02. Eligible jobholder A worker who: Is aged at least 16 and under 75 Works, or ordinarily works in the UK, and Earns above the lower earnings level for qualifying earnings A worker who: Is aged at least 22 but has not yet reached state pension age Earns above the earnings trigger for Automatic Enrolment Chapter 08 THE TOP TEN AUTOMATIC ENROLMENT TERMS AND THEIR DEFINITIONS 03. Non-eligible jobholder A worker who: Is aged at least 16 and under 75 Works, or ordinarily works in the UK, and Earns above the lower earnings level for qualifying earnings 05. Qualifying earnings This includes but is not exhaustive of, the following pay elements (gross): Salary Wages Commission Bonuses Overtime Statutory sick pay Statutory maternity, paternity and adoption pay 04. Entitled worker A worker who: Is aged at least 22 but has not yet reached state pension age Earns above the earnings trigger for Automatic Enrolment 06. Pay reference period The Pay Reference Period is the period of time by reference to which the employer pays the worker their regular wage or salary. The pay reference period is not the same as the tax period. These earnings are used to identify whether an individual is an eligible jobholder or a non-eligible jobholder, and may also be used to determine the level of contributions a scheme must require. Determined by pension scheme rules. Please check with your pension provider. 22 23
Chapter 08 Automatic Enrolment: We ve got it covered Whatever size or type of business you run, there s a Sage Payroll software for you 07. Postponement Worker postponement: the employer may choose to delay their staging date by up to 3 months, this may be where they require further time to get ready for Automatic Enrolment. Eligible postponement: an employer may choose to postpone an eligible jobholder to avoid pro rata contributions or to smooth a spike in earnings of a worker that could potentially change their status on a temporary basis to an eligible jobholder. 08. Qualifying scheme A pension scheme that meets certain minimum standards by legislation. There are different standards depending on the type of scheme. Sage has provided easy to use software for over 30 years, consistently meeting the stringent standard set out by legislation the needs of our customers. We re working very closely with The Pension Regulator, investing significant resource to ensure our payroll and HR solutions are ready to provide our customers with a smooth transition into auto enrolment, guaranteeing compliance now and in the future. Over 500,000 employers in the UK choose Sage Payroll software to pay over 7.6 million employees. Sage One Payroll 1 15 Employees online software for start-ups and small businesses Sage 50 Payroll 1 Unlimited Employees desktop software for medium and growing businesses 09. Staging date Sources: Sage and YouGov survey, The Pensions Regulator, Department for Work and Pensions, Close Brothers. The date assigned to an employer based on the number of people in their PAYE scheme as of 1st April 2012 and the date from which the employer will assume responsibilities for Automatic Enrolment. 10. Phasing For defined contribution schemes, the gradual phasing-in of contribution levels until they reach the minimum level required by law, starting at a minimum total contribution of 2% from October 2012. 2% Minimum Total Contribution 24 25
Sage (UK) Limited North Park, Newcastle upon Tyne, NE13 9AA Visit: sage-exchange.co.uk/auto-enrolment Call: 0845 111 1111 www.sage.co.uk Sage (UK) Limited 2016 registered in England No.1045967 26