Automatic enrolment of workers is now well underway.
All the large and most of the medium sized employers have been through the process. Now it is the turn of the small and new employers. Below are the timings recommended by The Pensions Regulator (TPR), which, for many small employers, are wildly optimistic and assume that the employer is as interested in pensions as TPR is.
As there will be no more staged employers from 1 October, TPR suggests the following series of steps for employers to take:
Step 1: Confirm who to contact
Step 2: Choose a pension scheme
Step 3: Work out who to put into a pension scheme
Step 4: Write to your staff
Step 5: Declare your compliance
Most small employers tend to focus solely on the trading side of the business. It is what they are good at and how they make their money. Because of this focus, the date may be long gone before notification of the staging date is received by the agent. Indeed, staging could be as close as a month away.
So, what can an agent do to minimise the chances of being overwhelmed by the sudden increase in work, and the employer receiving a penalty? Make sure you know the date your clients’ duties will start. By being prepared, having a checklist and costings ready, talking to the client about timings and costs, and following the pre-determined steps.
Checking the client’s staging date
It is to be hoped that this has been done already, but if not, or if the employer is a new employer, one of the first tasks to be done is to find out the date of staging, and this can be found on this TPR page. All you need then is the employer’s PAYE reference.
If you discover that the employer does not have to enrol any staff be aware that is not the end of the matter. They will still have duties to perform, and an outline of those duties are here.
For the new employer, from 1 October 2017, automatic enrolment duties start the day they employ their first worker. They do however have the option of deferring their duties, an option which was previously only open to existing employers.
Point of contact
On the TPR website it is possible to nominate two points of contact. The employer must be one of the points of contact, however as the majority of the work will probably fall to the agent, it is recommended that the agent is the additional point of contact.
Checking who to enrol
In a previous article different types of worker were outlined, so what is included here is a brief summary.
- Only workers working or who ordinarily works in UK. Of these:
- Automatically enrol workers aged between 22 years and their State Pension Age, earning more than £10,000. These are known as ‘eligible jobholders’
- Workers aged between 16 – 74 years old and earning between £5,876 (the national insurance lower earnings limit) and £10,000 may opt into the pension, and if they do, the employer must also contribute. These workers are known as ‘non-eligible jobholders’
- Workers aged between 16 – 74 years old and earning less than £5,876 may opt in to a pension scheme. The employer does not have to make any contributions and these workers are known as ‘entitled jobholders’
Choosing a pension scheme
There are three steps that follows. Two of which are possibly easy to do (depending on who runs the payroll and how accurate the records are); the third step may be more problematic.
1. Working out the client’s costs
This sounds easy, but, as said, it depends on the state of the records. There may be little work to do, or a lot of work to do. And that will not become clear until the records are scrutinised. Quoting an hourly rate here would be advantageous, at least until the initial assessment has been completed.
2. Checking the records and payroll processes
As the agent running the payroll this will be straightforward. However, if the payroll is run by a third party, accessing and checking the data can take time and effort as the information must be accurate so that the correct workers, and only the correct workers, are enrolled.
3. Choosing the scheme
The employer should make this decision, and unless authorised, the agent is not, under AAT rules, allowed to advise on this. TPR has guidance for agents on what they can do to help clients to choose a pension scheme.
This is when the real work begins, and much of it will be repeated every month to ensure compliance with the automatic enrolment rules.
Assessing and enrolling staff
The initial assessment will be to calculate the employer’s pension liability. The minimum employer contribution at present is 1%, but will increase April 2018 to 2% and then again in April 2019, to 3%.
These are an additional staff cost and the employer must be ready to meet them.
People have birthdays, and will fall in and fall out of the various categories. As such, the assessing and enrolling of staff must be performed initially, and then on a monthly basis. There may also be workers who choose to opt-out of the automatic enrolment process so records need to be kept and actions taken prior to every pay day.
Writing to your client’s staff
This could be the most difficult part of the employer’s job. What should be put into the letter? What exactly is written to each type of worker to explain their choices? Fortunately TPR has standard letters, and these can be found here.
Knowing the client’s ongoing duties
This is a continuous cycle of assessing, enrolling and occasionally a worker opting out. After three years there is the re-enrolment process to follow, but that can wait for another time. For now, as confirmation that the process has been followed a declaration of compliance has to be completed. And then you are done. Until next month, when the assessing and enrolling cycle begins again.
There has been independent research considering what the effect of reducing or removing the earnings trigger would be. The results showed that 3.3 million or more workers would become eligible for automatic enrolment, many of them women. By removing the earnings trigger, all employment, including part time employment would be included in the assessment, and this could mean that the final pension pot of a worker with more than one part time job could increase by 200%.
For those agents using the government’s Basic PAYE Tools (BPT), the Pension Regulator issues a basic automatic enrolment assessment tool on excel that can be used to assess workers on a monthly basis.
TPR website has very helpfully laid out the steps for agents here. It is recommended that these are followed, in whatever timeframe is available, to meet the requirements of automatic enrolment.
Julie Hodgskin is a fellow member of AAT, runs a licensed accounting practice and is a technical materials author for CIPP.