Auto enrolment postponement guide

    auto enrolment postponement

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    Auto enrolment postponement guide

    If your business is employing staff for the first time, or postponing auto enrolment for the first time since putting a pension scheme in place, it is important that you understand what to do and when, to meet your employer duties.

    The following guide for employers on postponing auto enrolment looks at the auto enrolment process for workplace pension plans, and when and how to use the auto enrolment postponement rules.

    What is auto enrolment?

    Under the Pensions Act 2008, every UK employer must put certain staff into their workplace pension scheme and contribute towards it. This is referred to as automatic or auto enrolment. If you employ one or more people you are an employer, with certain legal duties, including workplace pension duties. These legal duties commence on the day that your first member of staff begins work. This is referred to as your duties start date.

    Auto enrolment was introduced by the UK Government to help more people save towards their future retirement. As a result, employers must automatically enrol certain workers into a workplace pension plan, as well as providing other workers with the option to join. However, your employer duties will depend on the types of worker that you employ, where you will have different duties for different workers. There are three categories of worker in this context, determined by how old they are and how much they earn, including:

    • Eligible jobholders: these are individuals who are aged between 22 and state pension age, they work or ordinarily work in the UK and their gross earnings are above £10,000. Eligible jobholders must be automatically enrolled into an auto enrolment scheme.
    • Non-eligible jobholders: these are individuals who are aged at least 16 but under 75, they work or ordinarily work in the UK and they either earn over £6,240 up to £10,000, or over £10,000 and are aged 16-21 or over £10,000 and are aged between state pension age and 74. These workers have the right to opt in to the auto enrolment scheme.
    • Entitled workers: these are individuals who are aged at least 16 but under 75, they work or ordinarily work in the UK and they earn £6,240 or less. Entitled workers have the right to join a pension scheme.

    This means that you will need to automatically enrol some of your workers into a pension scheme and arrange membership for others. You will need to assess your workforce to determine who is to be treated as a ‘worker’, including contractors and/or agency workers. A worker is defined as any individual who works under a contract of employment, ie; an employee, or has a contract to perform work or services personally and is not undertaking the work as part of their own business, ie; on a self-employed basis.

    However, those who do not work or ordinarily work within the UK, or those under age 16 and aged 75 or over, are not covered by the employer duties. Equally, the employer duties may vary, or may not apply to a particular worker where, for example, the worker has opted out of a qualifying pension scheme, or where the worker has given written notice or been given notice to terminate their employment, together with various other exceptions.

    The automatic enrolment start date, also being the date on which your employer duties around pensions first apply, will be from the date your first member of staff starts work. You must complete a formal declaration of compliance to demonstrate to The Pensions Regulator (TPR) that you have an auto enrolment workplace pension scheme in place, and how you have met your legal duties, within five months after your automatic enrolment start date. You will also be required to re-declare compliance around every three years.

    What is auto enrolment postponement?

    Auto enrolment postponement is a process by which you can defer the assessment of workers, and your employer duties around workplace pensions, for a period of up to three months. This essentially means that you can decide to delay working out who to place into a workplace pension scheme for up to three months for either some or all of your staff.

    As an employer, postponement is a flexible option for you to use if you have new short-term or temporary staff who you expect to stop working for you within three months, or you have staff who begin work on a probationary period. It can also be useful if you need additional time to set up your workplace pension scheme, or other business processes, or if you would like to synchronise enrolment dates with the start of a particular pay period.

    Using postponement may make the assessment of your staff easier. This is because you only need to work out who to place into a pension scheme if staff are still working for you at the end of your selected postponement period. However, postponement does not change either your duties start date or declaration of compliance deadline, but simply changes the day on which you need to assess your staff’s age and their earnings for pension purposes.

    Equally, the postponement period cannot be more than the maximum of three months. The end of the postponement period is referred to as the ‘deferral date’ and you must assess workers, together with your employer duties, on this date.

    Below we set out the employer duties for each type of worker on assessment:

    Eligible jobholder

    • Automatically enrol the eligible jobholder into an auto enrolment scheme
    • Deduct contributions from that individual’s salary and make contributions on their behalf
    • Process any opt-out notices and refund contributions already paid
    • Roughly every three years re-enrol anyone who has previously opted-out, stopped making contributions or ceased membership for more than 12 months before each re-enrolment date
    • Keep records of the auto enrolment and opting-out processes
    • Provide any records of the auto enrolment and opting-out processes to TPR if requested.

    Non-eligible jobholder

    • Provide information about the non-eligible jobholder’s right to opt-in to an auto enrolment scheme
    • Arrange workplace pension scheme membership
    • Deduct contributions from the non-eligible jobholder’s salary and make contributions on their behalf
    • Process any opt-out notices and refund contributions already paid
    • Continually assess this person’s age and/or earnings
    • Keep records of the enrolment, as well as the opting-in and opting-out processes
    • Provide any records of the enrolment, and opting-in and opting-out processes, to TPR if requested.

    Entitled worker

    • Provide information about the entitled worker’s right to join a workplace pension scheme
    • Arrange workplace pension scheme membership
    • Deduct contributions from the entitled worker’s salary and pay these into the scheme, where you are not required to make contributions, but you can choose to do so
    • Continually assess their age and/or earnings
    • Keep records of the joining process
    • Provide any records of the joining process to TPR if requested.

    How does auto enrolment postponement work?

    If you decide to use auto enrolment postponement, you must provide each worker with a written postponement notice. This must be sent within six weeks and a day of either:

    • your automatic enrolment start date, also known as the duties start date
    • any new member of staff’s first day of employment, where this could be useful to cover a probationary period, or for seasonal, temporary or contract staff, who may stop working for you within three months
    • the day that an existing member of staff first meets the age and earnings criteria to be put into a workplace pension scheme, for example, when they turn 22.

    This means that if you opt for postponing auto enrolment, you must write to your staff to let them know that you have delayed working out who to place into a scheme and how the automatic enrolment process applies to them. However, there is no need to notify TRP of any enrolment postponement decision.

    You can postpone as many or as few of your staff as you choose, where you can use it for a single member of staff, a group or all of your staff. Equally, the period of postponement does not have to be the same length of time for everyone selected, provided this is no more than the maximum of three months. On the last day of the postponement period, the deferral date, you must assess these staff to decide whether they meet both the age and earnings criteria to be placed into a pension scheme. If so, you must put them into a scheme straight away and pay into it. You cannot subsequently apply a further period of postponement for these members of staff, even if you postponed for less than three months. However, if a staff member does not meet the age and earnings criteria to be put into a workplace pension scheme, you can use postponement again.

    If any of your staff ask to join a pension scheme during their period of postponement, you must put them into one having received their written request before the deferral date. This is referred to as ‘opting-in’. You will have to pay into the scheme if they are aged 16-74 and and earn at least £520 gross a month or £120 gross per week. Your pension scheme provider will be able to tell you how much you will need to pay.

    What should an auto enrolment postponement letter include?

    The following template for an auto enrolment postponement letter can be used to notify your staff, as required by law, although this can be tailored to suit the particular needs of your postponement arrangement:

    Dear [name of member of staff],

    To help workers save more for their retirement, all employers in the UK are legally required to provide a workplace pension scheme for qualifying staff and make payments into it. This means that we must enrol any staff who meet the following criteria:

    They earn over £192 per week or £833 per month
    They are aged 22 or over and under the state pension age.

    If you meet the above criteria on [insert date], this means that you will be enrolled automatically into our workplace pension scheme. If this happens, we will notify you in writing. However, you can join the scheme before this date if you so wish (see HOW TO JOIN below).

    If you do not meet the necessary criteria, you will not automatically become a scheme member but if, in the future, you meet the earnings and age criteria, we will then enrol you into the pension scheme and let you know that we have done this.

    If you do not meet all of the relevant criteria, relating to both earnings and age, you can still ask to join the scheme, either now or in the future. If you make a request to join, you will put money into the pension scheme each month directly from your pay. The government may also contribute through tax relief. If you earn more than £120 a week or £520 a month when you ask to opt-in, the minimum amount that you will put into the scheme will be 5% of your earnings. We will also contribute to the pension pot on your behalf, unless you earn less than £120 a week when you ask to join, in which case we are not legally obliged to contribute.

    HOW TO JOIN: to join the scheme, notify us in writing, either by signed letter or email, including the phrase, ‘I confirm that I have personally submitted this written notice to join a workplace pension scheme.’

    Yours sincerely,

    [name of employer or person on behalf of employer].

    Auto enrolment postponement risks for employers

    Importantly, where applicable, your employer duties are not optional, where TPR will take enforcement action if you fail to comply with these duties. This means that when postponing auto enrolment into a workplace pension plan, you must ensure that you do not postpone for longer than is permitted under the auto enrolment postponement rules, and that you provide your members of staff with the correct notice in writing.

    Although the approach taken by TPR will generally be to educate and encourage compliance, they can impose penalties if you fail to comply with your employer duties. Falling foul of the rules could result in substantial fines and, in especially serious cases, could even result in prosecution and a term of imprisonment.

    Auto enrolment postponment FAQs

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    Legal disclaimer

    The matters contained in this article are intended to be for general information purposes only. This article does not constitute legal advice, nor is it a complete or authoritative statement of the law, and should not be treated as such. Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its accuracy and no liability is accepted for any error or omission. Before acting on any of the information contained herein, expert legal advice should be sought.

     

    Author

    Gill Laing is a qualified Legal Researcher & Analyst with niche specialisms in Law, Tax, Human Resources, Immigration & Employment Law.

    Gill is a Multiple Business Owner and the Managing Director of Prof Services - a Marketing & Content Agency for the Professional Services Sector.

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