UK Update: Auto Enrolment: Don’t Trip Up

The UK Government recently announced an expansion of the auto enrolment regime.

The lower earnings threshold will be removed and employees will now become eligible from the age of 18 as opposed to 22.

With these changes afoot, it’s a good time to review your auto enrolment procedures to make sure they’re fit for purpose and that you’re meeting the statutory requirements.

Here are the top five things that employers should look out for:

1. You need to be in to opt out

If an employee is eligible for auto enrolment, they must be enrolled. They can opt out once they have been enrolled, but they can’t opt out in advance. Letting employees opt out in advance does not extinguish your auto enrolment obligation towards them and could mean you find yourself with an obligation to enrol them at a later date and make backdated contributions.

2. It’s all about how it’s calculated

The minimum contributions required for auto enrolment compliance depend on how contributions are calculated. For example, if you’re using all of an employee’s earnings to calculate contributions then the minimum is 7%. However, if you’re using “qualifying earnings” the minimum is 8%. Make sure you understand how contributions are calculated and that you’re meeting the minimum.

3. You can postpone, but only voluntarily

If you’re using postponement to postpone an employee’s enrolment, you must provide them with a “postponement notice” which contains certain information. One such piece of information is a statement informing the employee that they can ask to join your scheme before the end of the postponement period if they wish to do so. If they so ask, you will have an obligation to enrol them and (assuming they meet the criteria) make contributions in respect of them.

4.Sacrifice is a choice

Many employers have a salary sacrifice arrangement in place for pension contributions. It can be beneficial because it reduces the NI contributions that both employee and employer have to make, thereby potentially increasing take home pay. But it’s important to note that, where an employee is eligible for auto enrolment, they cannot be forced to use salary sacrifice and must be permitted to use salary deduction if they wish. In other words, if an employee who is eligible for auto enrolment tells you they don’t want to use salary sacrifice, you must accommodate this.

5.Exemptions, exemptions, exemptions

There are a small number of exemptions to the general auto enrolment requirements. For example, in respect of those with tax protection in place, and for certain directors. Be alive to these exemptions and make a decision on how you want to exercise them in each case. A common misconception is that all directors are exempt from auto enrolment. This is not the case and in many  instances you will owe the same auto enrolment obligations to your directors as you do to other staff. If in doubt, seek advice.

The Pensions Regulator is currently carrying out auto enrolment spot checks on employers in the Glasgow area, with more planned for Edinburgh and the Lothians. So time is of the essence, if you think that something isn’t right.

By Burness Paull LLP, Scotland, a Transatlantic Law International Affiliated Firm.  

For further information or for any assistance please contact uklabor@transatlanticlaw.com

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