If you’re a business owner, you’ll remember your staging date and you’re probably accustomed to paying employer contributions towards an employee’s workplace pension.
More than a million businesses have complied with automatic enrolment legislation since the government’s flagship scheme was rolled out on 1 October 2012.
You must auto-enrol all workers earning more than £10,000 a year and aged between 22 and state pension age into your workplace pension scheme.
Employees currently put 1% of their pay packet towards their workplace pension, and as an employer you’re legally obliged to match that minimum contribution.
Failure to comply with this legislation may result in The Pensions Regulator enforcing action on your business, such as compliance notices and substantial fines in the worst cases.
What do I need to know?
From 6 April 2018, your employer contributions will double – from 1% to 2% – for all qualifying employees.
This is the second of 3 auto-enrolment phases, which will also see eligible members of staff increase contributions to a minimum of 3% towards their workplace pension.
Your employees are entitled to opt out of increasing contributions towards their workplace pension, although you must not encourage this or apply pressure in any way, shape or form.
It is also possible, under some schemes, for a worker to ‘opt down’ to a lower contribution rate within the first 6 weeks of being enrolled.
However, they will no longer qualify for the scheme if they choose to do this, so you will not be legally required to contribute to their pension.
Much like opting out, you must not encourage an employee to opt down under any circumstances.
How much is this expected to cost my business?
The overall cost to your business depends on the amount of qualifying employees on your payroll and their respective salaries, but all employers should prepare for rising costs.
For the purposes of an example, you employ Kelly on £28,600 a year before income tax and national insurance contributions are deducted.
As her employer, you will make an annual 1% contribution of £227.24 on her qualifying earnings (£22,724) in 2017/18.
After the minimum employer contribution rate rises from 6 April 2018, your 2% employer contribution will increase to £451.36 on her qualifying earnings (£22,568) in 2018/19.
Ultimately, your business will incur additional costs but you can also view contributing towards an employee’s workplace pension as a benefit that may foster goodwill among your staff.
What happens if I don’t comply?
If you don’t comply with your auto-enrolment duties as an employer, The Pensions Regulator may start the process by issuing you with a warning letter to outline the action you need to take.
Failure to act on this will lead to a statutory notice compelling you to pay any employer contributions you may have missed, while you may also be charged interest.
If there’s evidence of you breaking the law, you can expect a £400 fine before an escalation notice is issued – demanding fines of up to £10,000 a day, depending on how many staff you employ.
You will have various opportunities in this process to pay your fine and comply with the law.
Should I plan for further changes?
Yes, employer contribution levels will increase again – to 3% – from 6 April 2019.
Parliament is yet to confirm what the auto-enrolment earnings threshold will be for 2019/20, but we know all employers with eligible staff will be legally obliged to pay 1% more in 12 months’ time.
As it stands, this is the final phase of auto-enrolment and the rollout of the final 2 phases is estimated to result in an extra £17 billion a year being saved into workplace pensions by 2019/20.