The Impact of Auto Enrolment on UK Payroll Processing
How Auto Enrolment affects UK Payroll Processing
Auto enrolment has arguably been the most significant change to UK payroll processing this century. The regulations around auto enrolment are complex, requiring a whole new skillset, including a sound knowledge of pensions, and there are significant penalties for getting it wrong. In August 2019 one employer was handed a £350,000 fine for failing to fully comply with their pension duties!
Our Auto Enrolment Guide covers the intricacies involved in navigating your way through the regulations.
Auto Enrolment was introduced in the UK in 2012 in an attempt to encourage employees to start building their retirement funds. It was rolled out in stages starting with the larger companies and smaller companies following suit. As of February 2018, all existing employers should have their eligible employees registered in a workplace pension scheme. Failure to comply may result in penalties of:
- A fixed fine of £400
- An escalating notice of £50-£10,000 per day
- Prohibited Recruitment Conduct max. £5000
- A Civil Penalty Notice up to £5,000 per employee and £50,000 per organisation.
Who is eligible?
In order to be enrolled automatically into a workplace pension scheme there are a number of minimum standards to be met.
- Do they earn over the earnings threshold of £10,000 per year? – This can differ if you are paid monthly (£833) or weekly (£192). As assessment takes place each pay period you may find some employees are eligible if only for a short period.
- Are they aged between 22 and the State Pension Age? – State Pension Age depends on the year you were born, use uk pension age checker if you are unsure.
- Do they have a contract of employment in the UK? – i.e. are not a self-employed contractor, or third-party sub-contractor.
While anyone who does not meet these standards does not have to be automatically enrolled in a workplace pension scheme, they are entitled to request to join the scheme.
An employee is entitled to opt out of their pension scheme after they have been automatically enrolled. If any employee wishes to opt out and they are within their first month on enrolment they will be treated as if they never joined the scheme and all contributions made by them will be returned in full. If they decide to opt out after one-month contributions made are held until they can draw pension benefits, unless otherwise stated in the pension scheme rules. An opt out form must be complete by the employee and returned to the pension scheme provider. Once opted out this usually last three years, after that time you are required to automatically enrol that employee again if they are eligible. If they are still not ready to start paying contributions, they can opt out again for a further 3 years.
How much do you Contribute?
The minimum total contribution to the scheme is based on the employees qualifying earnings. These include salary, commission, bonuses etc before income tax and National Insurance. As of April 2019, the total minimum contribution is 8% of qualifying earnings. This is broken down as 3% of qualifying earnings to be paid by the employer, 4% to be paid by the employee and 1% Government tax relief.
Alternatively, contributions can be based on pensionable pay. Typically, this is basic salary not including commission, bonuses or overtime. They employer has the choice of whether they use pensionable pay or not, if you chose to use pensionable pay you must meet one of three requirements. More information on these can be found on pension advisory service.
By now you hopefully have met the staging date requirements and have all your eligible staff enrolled in your workplace pension scheme, but the work doesn’t end there. Auto enrolment is a continuous job that has to be looked at every pay period. Employees age, earnings, whether they have opted out etc all have to be checked each time for changes that may affect their eligibility for auto enrolment. While you might be compliant with the law now, failure to keep on top of this can result in penalties and fines. It takes time and resources that you probably do not have to spare so why not outsource the task to professionals.
Paycheck Plus, First for UK & International Payroll Services
UK payroll processing is a complex and time-consuming operation. Keeping up to date with ever evolving legislative changes, ensuring payroll compliance and delivering employee wages accurately and on time takes its toll on a business’ senior resources. Our award-winning team of global payroll providers have delivered outstanding payroll outsourcing services to all of our clients for nearly twenty years.