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Neil Esslemont discusses employer duties, pension schemes, and topics related to automatic enrolment law changes. Details include staging, employer classifications, employee safeguards, and payroll system checks.
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Island Partnership’s Scilly Business WeekPorthmellon Enterprise Centre - Isle of Scilly Neil EsslemontHead of industry liaison 8 March 2016 Automatic enrolmentThe employer duties The information we provide is for guidance only and should not be taken as a definitive interpretation of the law.
Topics Introduction to automatic enrolment Details of the employer’s duties Pension schemes and how to find one
Automatic enrolment An introduction • Why automatic enrolment was introduced and the story so far • The employer duties
What is automatic enrolment? The law on workplace pensions has changed. Every employer with at least one member of staff has new duties, including putting those who meet certain criteria into a workplace pension scheme and contributing towards it. This is called automatic enrolment. It’s called this because it’s automatic for members of staff - they don’t have to do anything to be enrolled into a pension scheme. It’s not automatic for employers. They need to take steps to make sure staff are enrolled.
Why is automatic enrolment being introduced? 7 million people are under-saving There are currently four people of working age for every pensioner by 2050 there will be just two. Past and predicted trends in the life expectancy period of 65 year old men and women in the UK as of 2004 and 2010
The story so far Approximately 100,000 employers to stage in the first three months of 2016 There are over 6 million people enrolled into automatic enrolment pension schemes More than 100,000 employers have automatically enrolled their staff
Staging • The employer duties apply to each employer fromtheir staging date: • the duties apply to all of the employer’s staff from that date. • An employer’s staging date will be based on the PAYE scheme or schemes that were being used on 1 April 2012. • After 1 April 2012, any change to the PAYE schemes being used will have no effect on the staging date. • However, new employers* will go last, from May 2017. Do not assume you know your staging date- check this on our website *Employers that did not exist (or werenot using a PAYE) as at 1 April 2012. Large employers Medium employers Small/micro employers New*employers Oct 2012 May 2017 June 2015 Feb 2018 April 2014
Staging profile (excludes those without eligible jobholders and employers with no workers) About half a million employers staging in 2016, almost 100,000 in Q1 We estimate* that 65% of employers yet to stage will have full automatic enrolment duties * Based on age and earnings data from HMRC
Overview of legal duties and safeguards Automatic enrolment legislation gives employersa duty to: • automatically enrol all staff who are eligible • other staff, who have the right to ask to opt inor join a pension • communicate to their staff • manage opt outs and promptlyrefundcontributions • every three years, automatically re-enrolstaff who are eligible • complete a declaration of compliance with the regulator • keep records • maintain payments of pension contributions The employee safeguards mean that employers: • must not induce staff to opt out or cease membership of a pension, and • must not indicate, when recruiting new staff, that the decision to employ them will be influenced by whether or not they intend to opt out.
Check suitability of payroll and IT systems Payroll software can help an employer carry out: the assessment enrolment communications, and calculation of pension contributions If your payroll software does not do all of the above, non-payroll software or services could be used. Some pension scheme providers offer some or all of these services. You should plan to test these systems before they go live. Employers have often found many errors in their staff records - so these should be checked for accuracy before staging.
Who is included in the automatic enrolment duty? A person may be subject to the automatic enrolment legislation if they are: aged 16 to 74 (inclusive), and work in the UK*... ... whether or not they are full time or part time, permanent or temporary. There may also be other people who areincluded: overseas workers, who are considered ordinarily working in the UK*. However, the truly self employed are not subject to automatic enrolment. * the Channel Isles and the Isle of Man are outside the UK
What if someone says they are self-employed? • If someone working for you says they are self-employed, you should not assume that this person is exempt from automatic enrolment … • unless they are a director of your company, as a director who is not working under an employment contract is exempt. • Otherwise, you should consider if the contract allows the individual to subcontract the work or freely substitute somebody else to do it … • if so, then you will not have any automatic enrolment duties for the individual. • However, if the individual is normally expected to do the work themselves (unless they are unable to do it themselves, eg they are on holiday or sick) … • then they are considered to have a ‘personal contract’ to perform work or services and the employer will need to judge whether or not the individual is doing the work as part of their own business.
Is someone working as part of their own business? • If someone (who is not a director) considers themselves self-employed and has a ‘personal contract’: • The employer will need to consider whether the individual is working as part of their own business or not. • There are a number of factors that will help decide this. Does the employer: • have control of the hours they work? • provide any employee benefits? • bear all the significant financial risks in carrying out the work (eg the individual is not financially responsible for their faulty work)? • consider the individual to be part of their own organisation? • provide what is required for the individual to carry out the work (eg tools)? • If most or all of the above are true, it would be reasonable to considerthat the individual is not undertaking the work as part of their own businessand so are subject to automatic enrolment. • Otherwise, they are truly self-employed and are exempt.
Is a director subject to automatic enrolment? • A director of a company is not classed as a worker, unless • the individual works for the company under a contract of employment • and • there is at least one other person working for the company under a contract of employment. • A director who is not working under an employment contract is never classed as a worker. • The exemptions can apply to more than one director working for the same company.
Example of sole employee/director exemption *Now there are two directors with contracts of employment duties apply to both Peter and Linda. This would be the same even if Linda was not a director and was just an employee - Peter’s exemption would stop when she joined.
Are you considered the ‘employer’? • Where someone: • is employed by you (ie they have a contract of employment with you), or • is directly contracted to perform work for you and you pay the individual: • then you are considered to be the ‘employer’(ie the ‘employer’ is the legal entity named in the contract). • Otherwise: • if someone working for you is employed by another company (perhaps because they work for an agency or their own limited company), you will not be considered the employer and so will have no AE duties for them. • if someone working for you is paid for this work by another company or agency, that company will have the responsibility for any automatic enrolment duties, not yourself.
To tell us you are not an employer • If an employer does not believe they are an employer because: • it is a sole director company, with no other staff • it is a company with more than one director, where no more than one director has an employment contract • the company has ceased trading • the company has gone into liquidation or has been dissolved • Tell us at • https://automation.thepensionsregulator.gov.uk/notanemployer • The tool is notfor employers who: • have no staff to enrol on their staging date, or • for companies in administration or in non-terminal insolvency
Assessment of staff Figures for 2015-2016
Assessing your staff Employers will need to assess all their staff on their staging date unless they choose to use ‘postponement’ (described in later slides). Their qualifying earnings mustbe used to assess their category (ie know whether they need to be automatically enrolled or, if not, whether they have the right to opt in to an automatic enrolment scheme). Qualifying earnings is any component of pay that could be considered one of these pay elements (an employer should use their reasonable judgement): salary/wages, commission, bonuses, overtime and some statutory payments (excluding expenses and dividends). Eligible staff must be automatically enrolled into a suitable scheme unless they are already an active member of a ‘qualifying’ pension scheme. After the staging date, employers will have to: assess all new staff who join them assess some staff every pay period (see slide on ‘Monitoring eligibility’) assess somestaff again every three years (see slide on ‘Cyclical re-enrolment’).
Exception - staff in notice period If notice is given or received by a member of staff (eg resignation or dismissal): before, or up to 6 weeks after, the automatic enrolment/re-enrolment date then the employer does not have to enrol them. During their notice period that member of staff does not have a right to opt in or join a pension. If notice is withdrawn, then the enrolment duty will be effective from this date.
Postponement Postponement suspends the duty of automatic enrolment and the need to assess and can be used: at the employer’s staging date for any or all existing staff on the first day of employment for any new joiner after the staging date, and on the date a member of staff is assessed as eligible. Only one postponement per member of staff can be made at a given time. Each person can be postponed from one day up to maximum of three months. The employer must notify any postponed member of staff within six weeks and a day of the start of postponement. The member of staff has the right to opt in or join during postponement. Employer must assess on the last day of postponement and: automatically enrol eligible staff, and for those staff not eligible, monitor them each future pay period. Postponement does not change or delay the staging date
Monitoring eligibility for automatic enrolment After the staging date, employers will have to assess, every pay period, any member of staff who: is not an active member of a qualifying pension scheme, and is not under postponement or the transitional period, and has not previously been automatically enrolled (or assessed as eligible, whilst an active member of a qualifying schemeϮ). Members of staff assessed as eligible would then need to be automatically enrolled (or postponed). Those staff members that do not fall into the above category should be left until the next cyclical re-enrolment date(see slide on cyclical re-enrolment). ϮA member of staff who has simultaneously been eligible and an active member of a qualifying scheme since the later of: the employer’s staging date; or the date they started work for the employer; or the last day of postponement.
Opting in and joining Staff can request to join or opt in to a scheme at any time, including during postponement. However, you will not necessarily know whether they are eligible to opt in to your automatic enrolment pension (where the employer must also make a contribution) - and this could also vary over time. All requests (whether an opt in or join request) are treated the same way. On receipt of any request to opt in or join a pension from a member of staff, employers need to: assess the staff member, to see if they are eligible to opt in, then if they are eligible, enrol them into your automatic enrolment scheme, or if not, you could choose to enrol them into any tax registered pension of your choice (and you do not have to contribute). Any staff member being enrolled into your automatic enrolment scheme must not be required to carry out any further action to achieve active membership.
Opting out Staff automatically enrolled (or who have opted in) may opt out. Employer must inform staff of their right to opt out and how to opt out. The employer must notgive out or send out opt out forms: requests to opt out must be handled by the scheme provider, and completed forms would normally be sent to the employer. A one calendar month opt out window starts on the later of two dates: once the staff member is an active member of the pension scheme, or when the employer gives a notice of enrolment letter/email to them. The member of staff will get a full refund of all contributions. Early opt outs (before the opt out window starts) - are not allowed. After the opt out window has closed, the staff member may still request to cease membership of the pension scheme (under the scheme rules). Anyone who has opted out, does not need to be assessed again until the employer’s next re-enrolment date (occurs approx every 3 years).
Communicating to staff • Employers will need to communicate totheir staff informing them of their rights: • enrolment • when using postponement • and to explain their right to opt in or join a scheme. • The deadline for most communications is within 6 weeks*. • Communications must be sent directly to the individual (eg by letter or email). • We have provided example ‘template’ letters, which may be customised. www.tpr.gov.uk/writing-to-your-clients-staff.aspx * Postponement 6 weeks from the day after the assessment date
Record-keeping Employers must keep records about their staff and the pension scheme used to comply with the employer duties (pension providers and trustees will also have duties to keep records). An employer can use electronic or paper filing systems to keep or store any records, as long as these records can be produced in a legible way. Most records must be kept for six years. Those that relate to opting out must be kept for four years. The records must be provided to The Pensions Regulator, on request. We can conduct an inspection, if we have reasonable grounds to do so (for example, this may be as a result of a whistle-blower alert).
Cyclical re-enrolment The re-enrolment date will occur approximately every three years from the employer’s staging date. An employer may choose their re-enrolment date to be any day, up to 3 months before or after, the third anniversary of their staging date or previous re-enrolment date (eg an employer who staged on 1 Oct 2012, may choose any day between 1 July and 31 Dec 2015). On the re-enrolment date, members of staff who have opted out will need to be assessed again and (if eligible)automatically re-enrolled (unless they opted out in the previous 12 months). Postponement cannot be usedat re-enrolment.
Declaration of compliance After staging, employers must complete a declaration of compliance and it must be completed within five months of the staging date and within two months after every re-enrolment date Employers may receive a penalty fine if they do not complete their declaration on time. Employers will need to provide certain details, for example: which pension schemes were used to comply with the duties, and the number of eligible staff automatically enrolled into each scheme. All postponements applied at the staging date must have come to an end before the declaration can be completed. You can start the online process early and partially complete your declaration.
Remedying a breach What if an employer makes a mistake and fails to carry out their duties? Tell the Regulator about the breach. TPR’s approach is an employer: • should take reasonable steps to put the worker back in the position they would have been in if compliance had occurred on time, and • should not profit from their mistake That means the employer should: • enrol them, backdated to the original date, and • ensure backdated employer pension contributions are paid, and • ensure backdated employee pension contributions are collected If TPR decides to take formal action against the employer and the worker should have been enrolled more than 3 months ago, TPR has the power to: • require the employer to pay both their own and employee contributions, and • require interest to be added to outstanding contributions
Automatic enrolmentChoosing a pension scheme The information we provide is for guidance only and should not be taken as a definitive interpretation of the law.
DC scheme minimum contributions Phase 3 Phase 1 Phase 2 Min DC 8% total* Min DC 5% total* *% of qualifying earnings Min DC 3% employer* Minimum DC 2% total contribution* Min DC 2% employer* Newemployers Large employers Medium employers Small/micro employers Minimum DC 1% employer contribution* Feb 2018 April 6th 2018 † May 2017 June 2015 April 2014 Oct 2012 April 6th 2019 † † Subject to parliamentary approval
What pension schemes can be used? Must be used for automatic enrolment and ‘opt ins’ Staff who already active members of a qualifying scheme do not need to be automatically enrolled Automatic enrolment scheme Employers will need to contribute to the pension scheme • Qualifying scheme • must be tax registered: • and meet minimum criteria Employers may also use a qualifying scheme or an automatic enrolment scheme for non-eligible staff • Scheme fornon-eligiblestaff • scheme is registered • must be registered in the UK or EEA* • must have no barrier to automatic enrolment • must be a qualifying scheme Employers are notrequired to make an employer contribution *European Economic Area states
Thresholds v Pay Reference Periods (PRP) 2016-17† † 2016-17 thresholds are subject to parliamentary approval
Pensionable earnings Pensionable earnings can be based on qualifying earnings OR another definition (eg basic pay). When qualifying earnings are used to determine pensionable pay: pension contributions are determined by the rules of the scheme, and will be based on banded earnings between the lower earnings threshold and upper earnings limit (currently £5,824*pa and £42,385*pa). If pensionable earnings are not based on qualifying earnings, the employer can self certify ifthe scheme meets certain minimum criteria: ‘Set 1’ - if basic pay from £1 is pensionable, or ‘Set 2’ - if at least 85% of total pay (scheme average) is pensionable, or ‘Set 3’ - if 100% of total pay is pensionable. • * Pro-rata of annual amount used in each Pay Reference Period. These figures are for 2015-2016. The Secretary of State will review this amount each tax year.
