What is Auto-Enrollment and Why is it so Important?
Auto-enrollment came into UK law in October 2012. The regulation came about to serve the needs of the pension sector to cope with the aging British population and reduce the future burden on the state pension scheme.
What the law states
Under Automatic Enrollment, every employee will be enrolled into a workplace pension scheme. Qualifying employees are those who work in the UK, earn more than £10,000 per annum and are between 22 years of age and of state pension age.
Employees, including part-time employees, not meeting the eligibility have the right to opt-in under qualifying conditions.
How it works
Payment is made directly from wages/salary into the pension scheme. The contribution made by the employee is added to by the employer (a legal obligation) and the amount is further enhanced by tax relief.
Although the law became enforceable in October 2012 with amendments made in April 2014, the rollout is gradual, with all qualifying businesses to be compliant by 2018.
Whilst it is legally enforceable for employers to offer a workplace pension scheme, it is not compulsory for employees to be in the scheme – job holders have options. Every employee who qualifies is sent a letter informing them of their auto-enrolment date. At this point the employee can choose to opt-out. The term opt-out has specific connotations when it comes to pension schemes and employers will need to be aware of the governance to ensure the correct conditions apply and are met, which includes timelines as defined by the Department of Work and Pensions. The principle is to encourage pension saving so it is more important to cultivate a culture of opting in than opting out.
Auto-enrollment is quite simply the law of the land for the UK. All employers must comply with the legislation. Any organization that pays people for work and is covered by the legislation, needs to be prepared to meet its auto-enrollment timetable. This means that if there is no workplace pension scheme in place, one has to be created.
All employers with a registered PAYE scheme will have a staging date. The date depends on the size of the employer. The larger the business and number of employees, the sooner in the timeframe the staging date will be.
Employers may take the option to postpone but this option only has a three month extension. Because this is a legal obligation, action will be taken in cases of non-compliance. The Pensions Regulator has various methods to deal with non-compliance from statutory and penalty notices to enforcement notices and the legal process through the courts.
Employers will find life easier with payroll software that processes auto-enrollment pensions.
The Payroll department and in particular, payroll software will be important in the run up to the staging date and beyond. The software will help the employer identify the staff that need to be included in auto-enrollment and will then process the pension contributions once the pension scheme is up and running as part of its regular functions.
Paul Byrne is Managing Director of Thesaurus Software, a company providing high quality business software including BrightPay and Bright Contracts. www.brightpay.co.uk
After qualifying as a chartered accountant, Paul went on to set up and manage his own accountancy practise. This helped Paul to understand the needs of both SMEs and accountancy practices. Realising that payroll software available did not meet these needs he set out to provide a solution.
Paul co-founded Thesaurus Software in 1991 with the goal of providing payroll software to Irish businesses. The company began as a family run business in his own home in Ashbourne, Co. Meath.
Since then, Paul has been actively involved in growing the business to where it is today. With a team of fifteen talented individuals, Thesaurus Software now provides quality software products and excellent customer service to over 60,000 businesses across the UK and Ireland.
Thesaurus Software is the creator of BrightPay, a payroll software package that makes managing payroll quick and easy. The company’s most recent product is Bright Contracts, software that creates and manages contract of employment and staff handbooks.
Paul is currently chairman of the Payroll Software Developers Association in Ireland. He is also a fellow of the Institute of Chartered Accountants in Ireland and a member of the Marketing Institute of Ireland.