The roll-out of auto enrolment is well into its fifth year. Having started with the largest organisations back in October 2012, it’s now the turn of small and micro sized employers.
If you’re one of these, you’re in good company. During 2017, hundreds of thousands of organisations just like yours will need to get to grips with auto enrolment.
If you aren’t sure what it means for you and your workers, this step by step guide to Automatic Enrolment for small businesses, will put you on the right path.
Step 1: Find out your staging date
The first step on the auto enrolment journey is to find out when you’ll need to comply with the new duties. This is called your staging date. You can find this out by visiting The Pension Regulator’s (TPR) website.
To help make the process as smooth as possible, it’s recommended that you start preparing for auto enrolment at least 6 months in advance of this date.
Step 2: Decide how you’re going to set up your workplace pension
Many pension schemes offer a variety of ways to set up and manage auto enrolment. Some are designed so you can do it yourself. They have user-friendly websites and don’t use complicated jargon.
You could also look to see if the scheme has a web chat service and an online help centre. These tools have proven popular with our employers as it means they can get answers to their questions, quickly and easily.
What if you don’t want to manage auto enrolment, you want to focus on running your business? You can look to technology to help you out.
Some schemes offer an online portal so you can hand over almost all the auto enrolment tasks to your business adviser or accountant. Other schemes have connected with payroll providers via web services.
This technology allows you to set up and manage auto enrolment through your familiar payroll software. You just need to check with your payroll provider to see if they’re set up with the scheme of your choice.
Step 3: Choose a pension scheme
There are a wide range of pension schemes you can use but, with so much choice, it can be a tricky decision to make.
Having decided how you’d like to set up and manage auto enrolment, you’ll want to check that the scheme is designed to accommodate this.
Another way to help you narrow down the selection further is to look for quality indicators. These include recognised accreditations, such as the PQM READY mark and the attainment of industry awards.
If you’re using a master trust, a type of pension scheme that’s open to multiple employers and run by a Trustee, you can check whether it has a clean bill of health against TPR’s master trust assurance framework.
As pensions are for long term saving, it’s important to look at the investment approach and its performance over time. You may also want to check if the provider has a responsible investment report.
It’s widely acknowledged that investing in organisations and markets that are well run, with sound environmental and social practices, leads to a better chance of sustaining long-term success and profitability.
It’s also well worth checking what support the scheme website offers to its members. Whilst easy to follow, jargon free, information is essential also look out for services such as a member help centre and web chat.
Tools such as The NEST phrasebook, which offers clear communication alternatives to pensions jargon, are also useful to help your workers get to grips with pensions.
Step 4: Assess your workers
Auto enrolment only applies to certain workers, depending on their age and earnings. Other workers can ask you to enrol them and you may or may not have to pay contributions for them.
It’s a good idea to do an initial assessment of your workforce early, to help you understand what the impact will be on your organisation. Make sure you’re using the latest figures when you assess your workers. The earnings trigger for auto enrolment is reviewed by the government every year and might change. For 2017/18, the trigger is £10,000.
To find out who you’ll need to enrol, who can ask to be enrolled and who you’ll need to make contributions for, visit TPR’s website.
Step 5: Decide how much you’ll contribute
The new duties mean you’ll need to make a minimum level of contributions on behalf of many of your workers. The legal minimum contribution for eligible jobholders is currently 2 per cent of their qualifying earnings. Of this, you need to pay at least 1 per cent. You can pay more if you want to.
Qualifying earnings is a band of gross annual earnings on which you can calculate contributions for auto enrolment. This is between £5,876 and £45,000 a year for the 2017/18 tax year. Again, these figures will be reviewed every year by the government.
On TPR’s website there’s a calculator tool to help you decide what contributions to make.
Once you’ve decided how to much you’ll contribute it’s a good idea to do some financial planning, budgeting for this cost.
Step 6: Set up your AE Pension scheme
As you reach the final stages in preparation, you’ll need to set up your account so it’s ready when your staging date arrives.
It’s worth doing this at least 3 months in advance of your staging date. As you prepare to enrol workers you may find you need to make changes to your in-house systems and processes.
Step 7: Inform your workers
Every employer has a legal responsibility to let their workers know how the pension reforms affect them, even if they’re not eligible for auto enrolment.
Many pension schemes provide communication templates that you can download and send to your workers. Check with your provider of choice to see if they can help.
Step 8: Enrol workers and start contributing
You should now be ready to enrol your workers and submit your first contribution schedule. It’s important to be ready to send contributions by the time your duties apply and avoid late payments.
Auto enrolment is an ongoing process, it’s not a case of ‘set and forget’. You need to adopt the process into your normal payroll activity, every time.
More Auto Enrolment resources
Thanks to Paul Budgen, Director of Business Development of NEST for helping to produce this guide to auto enrolment in 2017. If you need further help with AE, or you just want to find out more about NEST’s scheme, there’s lots of information on the NEST website.
For the answers to questions small employers frequently ask about auto enrolment have a look at; Auto-Enrolment – Common small business questions, answered