What is Auto-Enrolment and What Does it Mean to SMEs?
There has been widespread confusion amongst UK businesses following the government announcement that all employers will have to provide a workplace pension for eligible staff by 2018. This is known as automatic enrolment.
We’ve compiled a list of five fast facts to assist SMEs with auto-enrolment:
Fact One: Small businesses must comply with auto-enrolment even if they already have a group pension scheme in force.
Switching from or modifying an existing group pension scheme may be an inconvenience to many SME’s but unless it meets the necessary automatic enrolment criteria, changes need to be made. This may involve amending the terms and conditions or rules of the scheme, or choosing a completely new scheme that satisfies automatic enrolment. To find out if your current pension scheme does or does not comply, you simply need to check with your existing pension scheme supplier.
Fact Two: A company pension scheme must be provided to employees whether they want one or not.
Certain employees, typically young workers, may demonstrate apathy towards a workplace pension scheme, but if they’re aged between 22 and the state pension age and earn over £192 weekly or £833 monthly, they have to be automatically enrolled into a pension scheme. This encourages them to save for their future, and following a change in the law, requires them, your business and HMRC to make regular contributions.
Fact Three: Seasonal, short-term and temporary contract staff must be provided with a pension scheme.
Some businesses will hire short-term staff on restricted hours and variable pay to cope with added custom during busy periods such as Valentine’s, Easter, Halloween and Christmas. Your legal duty to them with regards auto-enrolment will depend on their age and what they earn, something that needs to be figured out from your staging date. At the time of each payroll, each short-term/temporary worker must be assessed on an individual basis. Once again, anyone aged between 22 and the state pension age earning over £192 per week or £833 per month must be enrolled into an appropriate pension scheme. You have a 3-month period to figure out exactly who needs to be included in a pension scheme, referred to as a ‘postponement’.
Fact Four: Sole trader business owners have no auto-enrolment obligations
Those who run a business as a sole trader and have no employees are not required to set-up an auto-enrolment pension scheme. However, you do still need to contact The Pensions Regulator to inform them of this.
Fact Five: Auto-enrolment may be applicable to family businesses
The type of role held by members of the family within a family business will determine whether you are duty bound to sign-up for auto-enrolment. The employment status section of the Gov.uk website will provide you with useful information on different employment contracts, but here is some handy guidance:
If you are all directors:
- Automatic enrolment is applicable if all directors have employment contracts
- Businesses with a minimum of 2 directors on employment contracts will need to auto-enrol
- Those companies with no director on an employment contract or a maximum of one director on an employment contract have no automatic enrolment duties.
If some of you are directors and some are not:
- Those who aren’t directors must be auto-enrolled
- When there are at least two people on employment contracts (whether directors or not), the company will be obliged to arrange automatic enrolment for any director who has an employment contract.
When a business has automatic enrolment duties for anyone, the age and earnings of the employees will determine what you need to do. Companies with directors who are provided with auto enrolment, aged between 22 and the state pension age, and earn over £10,000 annually, £833 monthly or £192 weekly, are not required to put them into a pension scheme unless they decide otherwise.
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