Auto-enrolment: What Is It and What Do I Have to Do?
With UK employers now legally required to provide an employee pension scheme, here's a detailed step-by-step auto-enrolment guide
What is auto-enrolment?
Automatic (or auto) enrolment is part of The Workplace Pension Reform, and requires every business owner in the UK to automatically enrol their workers into a workplace pension scheme provided:
- The worker earns more than £10,000 in a tax year
- The worker is between 22 and state pension age
NB: A worker is defined as: “An individual who has entered into, or works under a control of employment, or any other contract by which the individual undertakes to do work or perform services personally from another party to the contract.”
As of January 1 2016, small businesses with 30 employees or less must start the auto-enrolment process and comply with regulations by their staging date (explained below) between now and April 1, 2017.
What do I have to do to comply?
1. Figure out your staging date
The first step of ensuring your business is auto-enrolment ready is finding out your staging date.
NB: Your staging date is the exact date from when your auto-enrolment legal duties begins. Its determined by the amount of workers in the largest PAYE scheme that your business uses and is based on data HM Revenue and Customs (HMRC) collected on April 1 2012.
You will be able to find out your staging date from a letter you should have received from The Pensions Regulator. If the letter never arrived or you lost it, you’ll be able to find out your staging date online as long as you know your PAYE number for the system to provide answers relating to your employer duties. (See below)
The general staging dates are:
- Businesses with fewer than 30 workers will have a staging date between 1 July 2016 and 1 March 2017
- Business owners who don’t pay their workers via a PAYE scheme will have a staging date of April 1 2017
- New employers (PAYE income first payable between April 1 2012 and September 30 2017) will have a staging date between May 1 2017 and February 1 2018
If you wish, you can bring forward your staging date and align it with other business practices, such as the start of the financial year. (See below)
To find out your staging date, use this free online tool on The Pension Regulator website.
2. Find out your duties
If you’re not sure if auto-enrolment applies to you then you can find out what your duties are by using the Duties Checker on the Pensions Regulator website.
You will need to submit a few bits of information so The Pensions Regulator can work out what exact type of an employer you are and deal with you accordingly.
The Duties Checker will ask you to:
- Confirm whether you run a business or not
- Whether your business is active
- Whether you employ anyone
- What your PAYE code is
- The age range of your employees
- The bracket of how much your employees earn
The Duties Checker will then set out the tasks you’ll need to complete. It will also enable The Pensions Regulator to send you letters that apply to your particular situation.
3. Carry out an assessment of your workers
As the business owner, the onus and legal responsibility is on you to determine whether your employees are eligible to be automatically enrolled.
Your employees or ‘workers’ as they’re legally defined are divided into three groups – eligible workers, non-eligible jobholders and entitled workers.
Eligible worker: Someone aged between 22 and state pension age earning over £10,000 who must be automatically enrolled.
Non-eligible jobholder: Someone aged between 16 and 21 or between state pension age and 74 earning between £5,824 and £10,000 is ‘non-eligible’ but may choose to be auto-enrolled if they so wish.
Entitled worker: Someone earning less than £5,824 is entitled to ‘opt in’ but the employer is not obliged to enrol them automatically.
4. Look at your existing pension arrangements
As an employer there’s a good chance you may already have a pension scheme for your staff – often referred to as a ‘stakeholder pension’. You can continue to use this exiting arrangement but only if it meets the automatic enrolment rules. If it doesn’t, you’ll need to choose a new scheme that does.
If you have to set up a new scheme, it’s important to begin this process at least six months before your staging date as it can be quite time-consuming.
It’s highly advisable you look through various different schemes for your staff so you get the one that best suits everyone’s needs.
You should look at:
- The government scheme
- Independently reviewed schemes
- Schemes listed by industry bodies
- Your accountant/financial advisor
The government scheme: The National Employment Savings Trust (NEST) is a pension scheme provider that has been set up by the government and must accept all employers that apply to use it for automatic enrolment.
Independently reviewed schemes: Some providers have had their pension schemes independently reviewed as a sort of ‘seal of approval’. This is known as the ‘master trust assurance framework’.
When choosing independent schemes – ensure they’re suitable for lower paid staff as many may not receive tax relief on their contributions.
More information on independently reviewed schemes and tax relief is available here.
Schemes listed by industry bodies:
You can find lists of schemes on the following websites:
- Association of British Insurers: ABI members providing qualifying automatic enrolment schemes
- Pensions and Lifetime Savings Association (PLSA) Pension Quality Mark website
Your accountant/financial advisor: If you have an accountant, they may be able to help you find a scheme or a financial adviser that can help.
5. Talk to your workers about the process
Once you’ve chosen which auto-enrolment scheme you’ll offer to your workers you must formally inform them how automatic enrolment applies to each of them specifically.
Within six weeks of the staging date, you must write to each member of staff who:
- is being enrolled and explain what contributions will be deducted from their pay and paid into a pension scheme, as well as the details of the pension scheme chosen for other staff
- is not being enrolled and let them know they have a right to opt in or join another pension scheme
To ensure legal compliance, send them the information via
- a hard copy by post, internal mail or by hand
- in a body of, or via attachment in, an email
NB: Signposting to an internet or intranet site, attaching a URL or displaying a poster in the workplace is not considered ‘giving’ staff the information and therefore does not comply with any legal requirements.
6. Begin the auto-enrolment process
Once you have completed the first five steps, you’ll be ready to auto-enrol your workers.
You will need to provide:
- your chosen pension scheme provider with all required information about your eligible employees
- enrolment information to all eligible workers
You’ll also need your employees to become ‘active members’ of the pension scheme, and this can be via the trustee or manager of the occupational pension scheme or the provider of a personal pension scheme.
Legally, it is your responsibility to provider the correct information to the pension scheme provider, but it can be done on your behalf by an independent financial adviser (IFA), a benefit consultant, accountant or bookkeeper.
You’ll need the following information on all your eligible employees:
- Date of birth
- Auto-enrolment date
- Residential postal address
- National Insurance number
- Postal work address
- Work email address
- Personal email address (if available)
- Gross earnings in any pay reference period
The value of contributions payable to the pension scheme by your and your employee in any pay reference period (either as a percentage or a fixed amount).
7. Complete the Declaration of Compliance
After you have auto-enrolled your workers, you must declare your compliance with The Pensions Regulator within five months of your staging date (regardless of whether you postponed or not).
The Declaration of Compliance is an online form where you must explain how you have met your legal duties as an employer in the auto-enrolment process.
NB: Failure to declare compliance, or providing incorrect information, could result in a significant fine for your business regardless of whether you used an advisor or third party.
8. Start contributing to your worker’s pensions
Once your staging date has passed, you must start contributing to your workers’ pensions. There are several different percentage rates based on your employees’ ‘qualified earnings’ that you will legally have to comply with and these will change over time.
- A minimum rate of 1% until April 5, 2018.
- A minimum rate of 2% from April 6, 2018
- A minimum rate of 3% from April 6, 2019
NB: ‘Qualifying earnings’ are defined as either the amount an employee earns before tax between £5,824 and £43,000 a year or their entire salary or wages before tax.
Do I have only have to complete auto-enrolment once?
No, you will need to ‘re-enrol’ your employees every three years from your staging date. Any eligible staff who decided to opt out previously will have to be automatically re-enrolled and they will then need to individually opt out.
You will also need to regularly assess your workers and any possible changes such as changes in ages, earning threshold and so on, and enrol any workers that become eligible.
Can I postpone auto-enrolment?
As an employer, you can choose to delay assessing and therefore enrolling, some, or all of your staff, for up to three months. You must, however, write to said staff to tell them you’re postponing their automatic enrolment within six weeks from when the postponement starts.
One of the main reasons you may decide to postpone is if you employ temporary or short-term staff whose contract will end within three months.
You may also choose to align automatic enrolment with other business processes you may have such as aligning it with the start of the financial year.
You can only postpone automatic enrolment from:
- your staging date
- a staff member’s first day of employment
- the date a staff member first becomes eligible for automatic enrolment
NB: Even if you postpone from the staging date, it doesn’t change the staging date.
During the postponement period, staff (of who’s enrolment process has been postponed) can choose to opt into your business’s current pension scheme.
On the last day of postponement, you will need to know whether any member of staff whose automatic enrolment you’ve postponed is still eligible to be enrolled.
If they are, you must put them into a pension scheme straight away. You cannot apply a further period of postponement even if you postponed the process for less than the three months allowed.
What if I don’t want to do it myself?
It’s fair to say that you may find the initial auto-enrolment process time consuming and possibly tedious. The good news is, however, is that you can actually get somebody else to do it for you. There are a number of accounting services and software providers who can complete the process on your behalf – or at least help you through the process (for a fee of course!).
NB: While you are fully entitled to pay a third-party to complete the process for you, as the business owner you are fully and wholly legally responsible if your business fails to register in time.
The Pensions Regulator offers impartial advice and guidance on choosing auto-enrolment software here.
Are there any auto-enrolment exemptions?
If you are exempt from auto-enrolment, you can declare this online once you have checked your duties. People excluded from employer duties include:
- those who do not work or ordinarily work in the UK
- those under age 16
- those aged 75 and over
- the self-employed
- members of the armed forces
- directors of companies (unless they have a contract of employment to work for that company and there is someone else employed by the company under a contract of employment)
While you no doubt have countless tasks and responsibilities as a small business owner, it’s worth remembering that auto-enrolment is a legal obligation that your firm must adhere to. Failure to comply could result in significant fines for your business as well as the possibility of disgruntled employees, so make sure you get it sorted before it’s too late.