Time Accounts precious guide to Auto-Enrolment

You may have heard the word ‘Auto-Enrolment’ in the news over the past year. What it refers to is the new pension law the Government has introduced to get more people saving for their future.

Between now and 2018 up to 11 million workers not currently part of a workplace pension will be automatically enrolled onto pension schemes.

It is small employers i.e. those with up to 50 staff who have little experience of pensions who are more likely to find it difficult to cope with the administrative and cost burden of auto-enrolment, rather than large firms well versed in workplace schemes.

Who does Auto-Enrolment apply to?

Workers who are over 22 and under state pension age and earn in excess of £9,440 a year must be automatically enrolled onto a workplace pension scheme.

Any employee who does not fall within this category has the right to ‘opt in’ to a pension scheme and the employer must provide one for them if they ask.

Employer duties are mandatory. The Pensions Regulator (TPR) will ensure employers comply with the regulations or employers will face fines of up to £500 per day or even imprisonment.

When does Auto-Enrolment come into effect?

Small businesses will be required to enrol from 2015. However each individual business needs to determine their ‘Staging Date’.

Your staging date is determined by the size of the employer’s PAYE scheme based on the number of employees derived from information held by HMRC on 1 April 2012.

To find out your ‘Staging Date’ enter your PAYE reference number by holding the control key on your keyboard and clicking here.

How much will employees and employers need to contribute?

The minimum contributions that both the employee and employer must contribute are being introduced gradually over time, based on a percentage of qualifying total earnings.

Date

Total Minimum Contribution

Minimum Employer Contribution

Minimum difference to be made up by employee

October 12 – September 17

2%

1%

1%

October 17 – September 18

5%

2%

3%

October 18

8%

3%

5%

Contributing to employees’ pension pots is likely to be a first time expense for many companies.

For the first few years of auto-enrolment, when contribution levels are at a total of 2%, businesses find themselves spending an extra 1% on their employees on top of their salary, which in many cases will total a significant sum of money.

On the plus side it will not produce any additional tax liabilities for firms, as employer contributions can be offset against profit and as such corporation tax and are not subject to employer National Insurance contributions.

Employers need to assess how much they can expect their costs to rise with auto-enrolment, whether that can be accommodated within existing budgets and, if not, where savings can be made to ensure the firm begins enrolling on time.

Conclusion

All in all auto-enrolment is going to be a time consuming and some what baffling system but one that must be put in place.

The best plan is to start preparing now to ensure a smooth transition and less upheaval when the time comes to enrol staff on the workplace pension scheme.

This article simply sets out the basics of auto-enrolment. If you require any help or advice, Time Business Services are a local Sussex based accountancy practice dealing with all aspects of small, medium enterprises and their financial requirements. We have a friendly and reliable team ready to assist with your accountancy needs so just pick up the phone and call or send us a call back request and we’ll do the rest!

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