"benefits.market has simplified the entire process of buying employee benefits"

James Harrap
Managing Director

Read our case study

Company Pension

We love company pensions! But it’s a complicated subject area. Here’s a plain-english guide to automatic enrolment for employers, and their bookkeeping, accounting and payroll advisers.

Why do employers need to provide a workplace pension?

The simple answer - it is the law. Most employers will have Automatic Enrolment duties and will need to provide a Workplace Pension. On the plus side, pension contributions are tax deductible for employers and employees.

What are the essential things, as an employer, I need to know?

Is my business exempt?

Your business may be exempt from Automatic Enrolment duties (e.g. if it is a director-only company). But if you employ workers (even 1 person) then you will have some duties.

If any of those employees are aged 22-65 and earn over £10,000 p.a. then you will need to have a Workplace Pension in place. If nobody earns over £10,000 then you may not need one (unless someone joins voluntarily).

When does the law apply to me?

If you had no employees before 1 October 2017 then, as soon as you pay your first employee, you will usually have immediate duties to assess, communicate and potentially enrol them into a Workplace Pension scheme.

If you paid an employee before 1 October 2017 then you should already have been given a staging date by The Pensions Regulator (which will either be in the past or 1 November 2017, 1 January or 1 February 2018).

However, if you started paying someone on/after 1 October 2017 who was employed before that date (and where a PAYE scheme existed), then you should check with The Pensions Regulator, as you may be could either have a Staging Date or have to start assessing immediately.

How do I choose a pension provider?

There is a good choice of pension providers available. They have different features and costs for employers and again for your workers. There are lots of good Workplace Pensions and a lot of not so good ones.

We have short-listed six major pension providers that we think are suitable for small employers. These all support data automation which makes setup and operation simpler.

How do I assess my staff?

Each worker needs to be “assessed” to see if they must automatically be put into a Workplace Pension (i.e. “enrolled”), or have a voluntary option to join.

“Assessment” is generally done within your payroll software, but could be done by a specialist AE system (often referred to as “Middleware”).

The assessment must be carried out every payrun (forever). This is to ensure that all your workers are considered, and will review any workers who are not in the pension scheme (and who have not previously opted out), plus any new workers joining your company. This continuous assessment will also pick up anyone who reaches the age of 22 during that pay period.

Choosing good payroll software, or working with a payroll team that knows what they are doing is key to managing pensions successfully.

We can help introduce you to companies that provide payroll services for clients. Ask one of our specialist support team via web-chat for more details.

How do I communicate to my staff?

You will need to tell all of your workers the following:

  • the results of their individual assessment;
  • if they have been automatically out into a pension scheme (or not);
  • which pension provider you have selected (as an employer);
  • what their pension contributions will be (as a percentage of earnings, not as an amount);
  • how much you will contribute (as a percentage of their earnings);
  • how this will change in the future (and when);
  • if they have been automatically joined, that they have the right to opt out and how this can be achieved, and;
  • if they have not been automatically joined what their options are if they want to voluntarily join.

Most payroll softwares and middlewares have statutory communication templates that include all of the required information. The Pensions Regulator also provides template letters to download free of charge.

You have to communicate to your staff within 6 weeks of your Staging Date/Employer Duties Start Date.

Do I have to make regular payment to my pension provider?

Each time you pay your staff you will need to send details on pension contributions to your pension provider.

Exactly what you contribute is calculated when you run your payroll, and many good payroll softwares connect with leading pension providers to make the submission of contribution data a painless job.

How much do I have to pay?

There are minimum amounts set out in law, which will increase in phases over the next 2 years. You may want to pay in more than that, but many employers pay the minimum.

In short, the minimum contribution amount every month is 2% of all earnings between £499 and £3,750. As an employer you have to pay a minimum of 1% of these earnings. You can choose to pay the whole 2% otherwise your employees must pay the other 1%. For weekly, fortnightly or any other pay periods the amounts are pro rated, check out the exact figures here.

In April 2018, the minimum total contributions increase to 5% respectively (with a minimum of 2% paid by the employer), and then in April 2019 8% (with a minimum of 3% paid by the employer). The earnings that these percentages will be applied to will also change every April.

It is possible to use different earnings definitions and different minimum contribution percentages. These are particularly useful if commission and/or overtime makes up a large proportion of earnings or if you want to be more generous to your employees. If you would like to explore this, speak to your adviser.

The Pension Regulator helps you understand this better. Please click here

When do I have to submit my Declaration of Compliance?

Within 5 months of your initial staging date or duties start date you have to make a Declaration of Compliance with The Pensions Regulator.

Your accountant or payroll agent may be able to do this for you.

And remember that every three years you will have to re-assess any workers who are not in the Workplace Pension and possibly automatically join them to the Workplace Pension (even if they had previously opted out). This is called cyclical re-enrolment and you will need to make a new declaration to The Pensions Regulator each time.

Who can help me with automatic enrolment?

If you want to remove the administrative burden of Automatic Enrolment, then why not work with a payroll team, or specialist company, which is experienced with automatic enrolment and which uses our pensionsync technology.

This map shows the location of accounting companies and payroll bureaus that can help employers open a benefits.market account. Speak to one of our advisers via web-chat and we’ll introduce you to a suitable agent.

What’s pensionsync technology?

pensionsync is a software-service that automates the delivery of your payroll data to your pension provider. pensionsync reduces the manual burden of automatic enrolment meaning your payroll team operates more efficiently, more securely and more economically.

All of the companies and payroll software products that we recommend use our pensionsync technology, and they can help you open an account with benefits.market.

The importance of payroll software

Do you manage payroll for your organisation? If so then we recommend you use one of the following software products, or specialists agents, because they connect seamlessly with our preferred pension provider partners using our unique pensionsync technology.

Desktop payroll software Cloud hosted payroll software 3rd party specialist service

Please ask one of our support specialists via web-chat, and we’d be happy to discuss the various options to enable you to choose the best software provider for your business.

Which pension providers do we work with?

We think that you won’t go too far wrong with one of the following pension providers below. There are no guarantees in life, but we think that these providers will be around for a long time and provide a good Workplace Pension package for employers and workers.

There are other pension providers in the market, some well known, others less so. We work with these pension providers because they are well established, well governed, and between them will be able to meet the needs of employers of all shapes and sizes. Working with pensionsync means they have made a commitment to making automatic enrolment as easy as possible for small employers.

If you need more help assessing which pension provider is best for your business, then contact us over the web-chat. We can help you make a selection. Alternatively, visit www.pensions.market - a free workplace pension provider comparison site which we have created.

Anything else I should know about?

Yes. There are literally reams and reams of details you need to know about your duties as an employer. Our recommendation is to work with a payroll team with expertise in automatic enrolment. But in the meantime here is a quick list of some of the more important things to consider about automatic enrolment and your business:
The Pensions Regulator

The government body that oversees auto enrolment. They have lots of useful information on their website. If you do not comply with the rules, they are the ones who police it with potentially eye watering fines.

Employee assessment

Who do you have to put into the scheme. Simplistically, those earning over £10,000 p.a. Age 22 - state pension age. The details make this much more complicated than that but your payroll software should do it automatically.

Staging date

If you had a PAYE scheme before October 2017, then the date your auto enrolment duties start.

Duties date

For all businesses employing people for the first time on or after 01 October 2017, the date your auto enrolment duties start. Basically, the date you first employ someone.

Cyclical re-enrolment date

The 3rd anniversary of your staging or Duties date. If people leave the scheme but remain in your employment, then every 3 years, you have to put them back in.

Staff communications

Enrolling people in the scheme and paying contributions is automatic but you have to tell them what is happening and what they can choose to do. Some specific content is prescribed so they have their own section. Your payroll and or pension will probably provide this for you or at least templates. If not, the pensions regulator provides some templates

Contribution phasing dates

The minimum level of contributions increases on 6 April 2018 and again on 6 April 2019. These are called contribution phasing dates

Declaration of compliance

As well as performing all these duties, you have to tell the pensions regulator that you have done so. This is done via the Declaration of compliance

Net pay arrangement

Pension contributions are deducted from the employees pay before tax is deducted and thus the tax relief they are entitled to is automatically provided. This is useful for higher and top rate tax payers as otherwise they have to complete self assessment to claim back tax relief over the basic rate.

Relief at source pay arrangement

Pension contributions are deducted from the employees’ pay after tax is deducted. The pension provider then claims tax relief from HMRC. Only the basic rate (20%) is claimed. The tax relief is paid regardless of whether or not the employee is a tax-payer so this is beneficial for low earners who might otherwise not receive the government “top-up”. However, higher and top rate tax-payers will have to claim the tax relief they are entitled to over basic rate via self assessment.

Salary sacrifice (or Salary exchange)

An HMRC approved method of saving national insurance on pension contributions. In return for higher employer contributions to the pension, employees accept a lower salary. Both employee and employer save on national insurance. There are important details to consider such as making sure that minimum wage legislation isn’t breached, low earners don’t give up 20% tax relief for 12.8% NI saving, and potentially a need to agree and issue changes to employment contracts. But it can save you and your staff money.

Postponement

Whilst your duties start on the day you employ someone, you can postpone the date you have to assess them and potentially put into a pension scheme for 3 months. This may be helpful if you employ short term workers or you want to align pensions with probation periods for example.

Pension Groups

You don’t have to make the same contributions for all staff. If you want to have different structures, then they are arranged into groups

Qualifying Earnings

All earnings between £5,876 and £45,000. In most cases, these are the earnings that the minimum contribution rates apply to.

Earnings Trigger

If an employee earns above this amount (pro rata for the pay period) then they have to be enrolled into a pension scheme. It is currently £10,000 p.a. (£833 per month)

Type 1 Employee

Someone earning above the earnings trigger and aged 22 - state pension age; you must put them into a pension scheme automatically. Previously known as Eligible jobholders

Type 2 Employee

Any employee aged 16 - 74 that is not Type 1. You do not have to put them into a scheme automatically but if they ask to join you must allow/enable that.

Opt-out

After you have put someone into a scheme, they may choose to leave - opt-out. Note that it is against the law for you to do anything to encourage them to do so.

PAYE scheme

As soon as you employ someone, you will probably have to register as an employer with HMRC who will set-up a PAYE scheme for you. There are a few circumstances where you do not have to do this e.g. employee earns less than £113 per week but even then, if they have another job or will claim expenses, then you will have to register.

Pay reference period

The period over which employees are assessed. The key feature about it is length or frequency e.g. a week or month as that determines the exact figure used as the earnings trigger. In practice, administration is generally simpler if this is aligned to your payroll pay periods.