Pensions begin to bite on small businesses

Since October 2010, auto-enrolment has steadily required more and more employers to automatically enrol certain workers into a qualifying pension scheme and contribute into that pension. It is now the turn of smaller employers to comply with this obligation.  

Automatic enrolment applies from what is known as a ‘staging date’. An employer’s ‘staging date’ depends on how many staff were registered on an employer’s payroll as of 1 April 2012. Employers who had staff on their UK payroll from that date will be subject to the requirements to auto-enrol staff by 1 April 2017, without exception. Employers that paid staff after 1 April 2012 will still be subject to auto-enrolment requirements between May 2017 and February 2018. 

Pension contributions are calculated based on a percentage of “qualifying earnings” which is essentially all pay, bonus and commission between £5,824 and £42,385. The minimum an employer is required to contribute is 1% increasing to 2% from October 2017 and then a maximum of 3% from October 2018.   Employee pension contributions are also required unless the employer chooses to make these contributions on behalf of the employee as well. 

The requirements are complex and employers need to keep a keen eye on which of their workers are eligible to be enroled from time to time. This will depend a lot on earning levels and employers should consider in advance how they will monitor their workforce to ensure that the relevant deadlines are met. 

With effect from 1 June 2015, it has become the turn of smaller employers (those with less than 50 employees) to comply with their staging dates. This means that even those employers with one employee are affected. 

It is worth noting that the pension regulator is clamping down on employers who are not complying with their auto-enrolment obligations. In the last three months of 2014, it issued 166 employers with fines of £400 each. 

To avoid penalties employers should: 

• Identify exactly when their staging date is;
• Understand what their auto-enrolment obligations are in relation to their workforce; and
• Ensure that compliance measures are put in place within the prescribed timetables.

This is a complicated area and will involve careful planning. Employers are advised to take pensions advice in good time to ensure they comply with their auto-enrolment obligations.  

These notes have been prepared for the purpose of an article only. They should not be regarded as a substitute for taking legal advice.