Neil Atkinson explains the obligations of small company owners when it comes to employee pensions.
Automatic enrolment of workplace pensions has now come into effect for companies with as few as 30 employees and it will soon embrace all employees, regardless of the size of business. Whatever the rationale behind the move, it is sure to cause an additional administrative burden on business, and will, due to their relative scale, affect small businesses the most.
The basic concept is that everyone must be automatically enrolled into a workplace pension scheme into which they put part of their salary and their employer also makes a contribution. Workplace pensions have been around for decades, but the big shift is that workers have now to opt out rather than in. This is designed to tackle the growing older population who can no longer rely on the state pension for sustenance into an extended old age.
While employees have the choice to opt out of the workplace pension, it is mandatory for all employers. If businesses don’t comply, they could risk a penalty notice of anything from £400 to £50,000, depending on the issue and the size of the company.
As of October 2014, 163 compliance notices have been issued by The Pensions Regulator, with one of the largest being for an underpayment of £143,000 of pensions contributions. Not being aware of obligations is not counted as a valid excuse for avoidance. Companies who miss their staging date (the date at which they will need to start automatic enrolment) by more than three months, could be expected to pay their employees’ contributions, as well as their employer contributions.
You also have a duty to provide information about auto-enrolment to your employees. This needs to include information about what your contribution is and what they need to put in, and that they can opt-out.
The rules can be complex and it is worth bearing in mind some important rules of thumb if you are a business that employs even one person.
It is the employer’s responsibility to ensure that all eligible employees, and non-eligible job holders who opt in, are enrolled into a qualifying pension. There are certain categories of workers who are not automatically enrolled and will need to opt in; these include those under 22 years of age or state pension age or older, or else anyone earning less than £10,000 per year. These groups of people still have the option to opt in.
If an employee opts out of any pension scheme within the one-month statutory window, then you should treat them as if they have never been enrolled, and give them a refund on their contributions. An employee can opt out at any time, however they are not entitled to a refund on contributions if they opt out following the close of the statutory window. They will need to send you an opt-out form, and they can opt back in when they want, but you are not required to accept them if they opted out within the last 12 months.
The three-year rule
Every three years, employers are required to re-enrol workers who have left a qualifying pension scheme. There is a statutory requirement to keep all records relating to auto-enrolment such as details of employees who have opted out and details of any non-eligible workers who have opted in.
Auto-enrolment takes time and careful planning and so it is useful to speak to an HR expert who will be able to provide you with advice and guidance. The solutions will be tailored to your individual business needs.
Neil Atkinson is founder of HR and employment law advice service Deminos.