In this article I want to briefly touch on the nasty business of auto enrollment, a bugbear for many a small business. As you probably are aware, it’s a compulsory change to your business administration and something you need to get ahead of. It’s actually a good thing. Consider it something like medicine, it might not taste very nice, but once it kicks in, it will ultimately help the community get well again.
How to prepare your small business for pension auto-enrolment
The new rules are simple. Eligible workers must be automatically enrolled and you must pay minimum contributions. Here are the criteria for inclusion:
Aren’t already in a qualifying pension scheme at work.
Are aged between 22 and the state pension age (the earliest age they can claim their state pension).
Work in the UK.
Earn at least £10,000 in a year
How much do I have to contribute?
The government has set minimum standards that employers must meet. For most employers, this means paying minimum contributions, which will start at 1% of a worker’s “qualifying earnings” and increase to 3% over the next few years. When you contribute, so do your employees.
The important thing to remember is that the term qualifying earnings means earning above £5824. To be clear, if you have a salary of £25,000 then you’ll have contributions on the difference between £5825 and £25,000 which is £19175.
These are minimums, as the employer you are obviously allowed to contribute more than these numbers stated here.
Auto enrollment can be opted out.
To date, most people have decided to stay opted in to their workplace pension. But it is optional, they are equally within their rights to opt out.
This is the worker’s right to choose, an employer caught trying to coerce their employee is breaking the law. If a member opts out, it has to be done within one month of being enrolled. As the employer you should refund their contributions and the pension scheme will refund the contributions that the employer made.
How do I choose the right pension scheme?
Of course, it’s an important decision when choosing which scheme you have your employees enroll in. A good starting point might be to look at the schemes recommended by the Pension Regulator.
For more information about auto enrollment and pensions in general, please get in touch. There are significant charges for being late with enrolling your employees, and the fines get steeper and steeper the later you are.
Auto enrollment is here to stay, it’s painful for small businesses, but it’s out of your hands now so it’s a matter of getting it set up so you’re legal.