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Automatic Enrolment Obligations for SME’s

By Simon Palmer (Qtac)

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Workplace Pensions has been in place since October 2012 but we are now entering what can only be described as the tsunami stage. There are already signs that compliance among smaller employers is becoming an issue. In the third quarter of 2016 The Pensions Regulator (TPR) issued over 15,000 compliance notices, against the 11,000 it had issued in total since October 2012.

You cannot hide, workplace pensions is here and will affect you as an employer. Every employer with at least one member of staff (including limited companies with only one director) now has new duties regarding workplace pensions.

What is automatic enrolment?

For employees, the process is automatic, they do not need to do anything to enrol for a workplace pension, but for small businesses it is an additional administrative process that you need to prepare for. As the employer, you need to take steps to make sure eligible employees are enrolled into a pension scheme.

Even if you already pay contributions into a pension scheme for your employees, you still need to check if it is suitable for automatic enrolment. If you are required to provide a workplace pension scheme you will need to:

  • Set up a pension scheme
  • Enrol your eligible employees into the pension scheme.
  • Declare compliance to the Pensions Regulator

When to prepare for automatic enrolment

Your staging date is the date from which automatic enrolment duties start and when the law comes into effect for you. Start preparing now by ensuring you understand your duties to ensure to meet the compliance deadlines. It is the responsibility of the company i.e. you as the director, to set up and administer the pension scheme if it is required.

Who is eligible for automatic enrolment?

It is also important to identify any eligible employees before your staging date to ensure if required, a scheme is up and running by your staging date.

Eligible Jobholder

You must enrol these employees into your workplace pension scheme and make regular contributions as their employer. You do not need to seek their permission. The employee can decide to opt out of the workplace pension however they can only do this after they have been enrolled.

Entitled Jobholder

Employees in this category can ask to be enrolled in the workplace pension scheme and you must allow them to do so. This means you will be required to make employer contributions.

Non – Entitled Jobholder

If they ask to join your pension scheme, you must provide a workplace pension scheme however as their employer you don’t need to make contributions.

Director-only businesses

If you don’t have any staff other than directors, you may not have any automatic enrolment duties. You won’t have any duties if the only people working for you are:

  • you as the sole director;
  • a number of directors, none of whom has an employment contract; or
  • a number of directors, only one of whom has an employment contract.

Automatic enrolment will apply if more than one director has an employment contract. In that case, the company will owe automatic enrolment duties to those directors who have employment contracts. If you only have directors and an office holder then, provided any such office holder does not have an employment contract, and does not usually receive a ‘salary’ for their services, they are not a worker. Therefore, provided no more than one of your directors has a service contract, the business remains exempt.

The office holder can be on the payroll but only for payment of fees for their services and/or their expenses, rather than a salary, so it is important to consider the specific facts and circumstances in each case.

If the company secretary has a contract of employment then the business is subject to automatic enrolment and owes duties to that company secretary, and also to any director who has an employment contract (but not to any further directors without a contract).

What if you also have low-paid employees?

If you also have some staff, but they are all earning less than the earnings trigger (currently £10,000pa) then you don’t need to automatically enrol anyone, however the business still owes duties to those employees so you must provide them with information about their right to opt in or join a scheme (and make a declaration of compliance to the Pensions Regulator (TPR)). However, you don’t need to actually set up a scheme unless and until one of your staff chooses to opt in or join.

In summary, automatic enrolment will not go away. Use the tool on the Pensions Regulator website to find out your staging date and begin planning. Given the number of employers who will be approaching their staging dates this year now is the time to think automatic enrolment.