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A Beginner’s Guide to Auto Enrolment: Part 2

22nd Dec 2014
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The payroll solution that provides all you need for Auto Enrolment.

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This is the second part to BrightPay’s three part blog on ‘A Beginner’s Guide to Auto-Enrolment’. Part one focused on an introduction to auto enrolment and who needs to be enrolled. See ‘A Beginners Guide to Auto Enrolment: Part 1’. Part two discusses the preparation required for auto enrolment and implementing auto enrolment in the workplace.

Preparation

A key part of preparation is having payroll software in place at the beginning of the tax year. Switching payroll software provider midyear can cause many complications. As some payroll software providers avoid auto enrolment and others offer great assistance, it is important that the employer knows what is being offered.

Another key part of preparation is seeking advice from IFAs. As there will be a high number of employers staging at the same time it is critical that seeking advice is not left until the last minute. Advisors however cannot tell employers what pension scheme to choose for their business. Instead they must inform employers of all the different options available. Ultimately, the employer must make the final decision.

In the run up to their staging date, employers must also gather employee information. Every employer must review their workforce before their staging date to identify the categories that employees belong to (eligible jobholders, non-eligible jobholders, entitled workers). This information will need to be monitored at each pay period.

Once the employer has chosen a pension provider for their company, they must register with that pension provider. Once this is done, they can now set up a pension scheme in their payroll software.

Staging

A company’s staging date is the date they must begin to offer a workplace pension scheme. The staging date can be found by entering the employer PAYE number on the Pension Regulator website. Companies with a large number of employees began enrolling employees in 2012, with smaller companies due to enrol before October 2018.

The staging date is based on the number of workers a company employed in April 2012. Any company set up since April 2012 will stage at the end, i.e in 2018. If an employer has 2 or more PAYE numbers, the staging date of all employees is based on the scheme with the largest number of employees.

Postponement

An employer may postpone enrolling employees for a maximum of three months. This can be done for individual employees or for all employees.

Employers should avoid postponing as a means of having more time to prepare as it can add additional problems and complications. Instead, there are many reasons why an employer may use postponement.

Delaying assessment can enable employers to:

  • Avoid enrolling employees who may have a temporary rise in earnings
  • Alter the enrolment of different categories of employees
  • Allow for workers with short term contracts

Communication

Communications is a vital employer responsibility when it comes to auto enrolment and is often considered the most challenging part of the auto enrolment process.

With auto-enrolment, you need to write to each member of staff individually depending on their employee category. Eligible jobholders, non-eligible jobholders and entitled workers all have different rights, and so each must receive different letters outlining their entitlements.

Letters to eligible jobholders must state that they have been automatically enrolled and have the option to opt out within the opt-out period. Non-eligible jobholders need to be told that they have the option to be enrolled, and that the employer must pay contributions. Entitled workers must be told that they can choose to join the pension scheme, however they are not treated the same as those who are enrolled.

If postponement is used, you must also write to the postponed employees to notify them. Furthermore, if you already have a qualifying pension scheme in place you still need to write to staff members who are in the scheme to let them know that they are not affected.

It is your responsibility to make sure the right information gets to the right member of staff at the right time. There are time limits in place to ensure that employees have sufficient time to gather information on auto-enrolment so that they can make a well-informed decision.

Opting Out

Once an employee is enrolled they have a 30 day opt out period in which they may choose to opt out and get a full refund of all deductions made. If employees wish to leave the scheme after the opt-out period is expired, they can cease active membership in accordance with the scheme rules. It is illegal for an employer to tell an employee to opt out. Furthermore, it is illegal to sway their decision to opt out in any way.

Compliance

Every employer is required to fill out a Declaration of Compliance within 5 months of their staging date. This allows The Pension Regulator to monitor employers across the UK to ensure that they are complying with their employer duties.

In October 2014, TPR began issuing penalties for non-compliance. If an employer is not fulfilling their responsibilities, TPR will send them a compliance notice, which allows the employer to complete certain tasks within a specific time period to avoid penalties. If an employer fails to comply with their compliance notice or unpaid contributions notice, TPR may then issue a Penalty Notice, penalising the employer for their non-compliance.

Reassessment

Employers are required to continue automatically enrolling eligible workers who’ve opted out, every three years. They are also required to complete a re-declaration of compliance every three years for the pension regulator to guarantee their compliance.

Part three of 'A Beginner's Guide to Auto Enrolment' looks at the ongoing responsibilities that employers must complete at each pay period.

Written for BrightPay by Rachel Hynes

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