Auto enrollment. What's the basis for contribution ?

Auto enrollment. What's the basis for...

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Can anyone assist in resolving this auto-enrolment question please?

Most of my clients are small and hence have staging dates in 2016 & 2017.  I am trying to get clear in my mind what components are included for pension payment purposes.  For those clients that pay just a basic salary I understand this to be their qualifying earnings ie the amount paid in excess of £5,824 but below £42,385 pa, at the appropriate contribution rates.

However, for clients that have employees who are paid a basic salary + commission and/or bonus payments things do not seem so clear.  Some articles talk about a ‘total pay’ basis whereas others talk about basic pay only.  Everything I have read so far talks about it being the ‘employers decision’ and that they ‘may need to take legal advice’.  Surely, most small employers would want to pay the least amount of contributions and so would opt for ‘basic pay’ only.  In what situation would this be an option?  

Is it all down to the employers contractual relationship with the employee, ie if the employment contract makes reference only to basic salary then its 'basic pay' only, but if commission is also included then that's included too, and so on.

I hope someone can give me a steer on this as having spoken to The Pensions Regulator, even the girl I spoke to was unable to advise!

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Euan's picture
By Euan MacLennan
02nd Sep 2015 10:25

My understanding, based on an incidental comment from an IFA, is that the employer can specify whether the qualifying earnings on which the contributions are based are the total gross pay or those elements of gross pay which the employer chooses as 'pensionable', provided that the pensionable pay amounts to 85% or more of the total gross pay overall.  It therefore depends on the size of the commissions/bonuses in relation to basic pay and on the proportion of employees receiving commissions/bonuses as the 85% is calculated on the overall payroll.

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By onicholson
02nd Sep 2015 11:14

Certification

From the regulator's notes:

http://www.thepensionsregulator.gov.uk/docs/detailed-guidance-4.pdf

Page 20 (49-52) refers to a common standard - qualifying earnings.

Page 23 (70-80) has some alternate certifications, which include the 85% figure Eaun mentioned.

In practice, you'll find that some providers will only offer contributions on a certain basis and you don't get much choice if you want to use that provider.

Note that all the numbers in that document are the full rates from October 18. Each set has similar increasing contribution to reach those rates by 2018.

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By Hugo Fair
02nd Sep 2015 12:42

Auto enrollment. What's the basis for contribution ?

Contributions are not based on Qualifying Earnings (QE) unless that is the basis defined in the T&Cs of the specific Pension Scheme (e.g. NEST).

The components of pay that make up QE are defined fairly explicitly within the regulations as all of the following items paid to a worker:

Salary and Wages;Commissions and Bonuses;Overtime;Statutory pay (SSP, SMP, OSPP, ASPP, SAP);Any other pay element that could be considered by the employer to be one of the above (e.g. car allowance?)

However the purpose of QE is solely as the figure used when assessing a worker - i.e. in order to determine her/his Status ... and therefore what (if any) action, including auto-enrolment, is required.

The components of pay making up Pensionable pay can in theory be defined by the employer - but only within the constraints of what the T&Cs of the Pension Scheme permit.

I think the comments about 85% etc above relate more to whether or not the Pension Scheme is an AE Qualifying scheme (and therefore suitable for use under auto-enrolment), but can't be as simple as indicated ... as, currently at least, NEST caps contributions at a level that can frequently mean pensionable pay is less than 85% of total earnings.

Thanks (2)
By JCresswellTax
02nd Sep 2015 14:41

Is it just me

Or are a lot of people spelling enrolment wrong?

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Portia profile image
By Portia Nina Levin
02nd Sep 2015 14:52

I do not think

That you are spelling enrolment incorrectly. Apparently, enrollment is the American spelling.

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By JCresswellTax
02nd Sep 2015 14:58

Still incorrect

In my eyes as we aren't in america.

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Portia profile image
By Portia Nina Levin
02nd Sep 2015 15:45

Arguably
The UK is an American colony. :)

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Euan's picture
By Euan MacLennan
02nd Sep 2015 15:57

What about ...

... the ones who spell it enrolement?  Is that, perhaps, the French spelling?

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By SteveHa
02nd Sep 2015 16:08

I spell it "morebeurocraticnonsense". I find it works well that way.

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