Omnium Employee Benefits

Auto-enrolment – what the latest changes mean for employers and employees

If you’re a business owner, you’re probably already accustomed to paying employer contributions towards your employees’ workplace pension scheme under the government’s auto-enrolment scheme which was introduced in 2012.

You’ll probably also know your Staging Date – i.e. the exact date when new rules apply to you and how much you’ll be expected to pay in future as the scheme is rolled out.

If you’re not clear on any of these matters, then you need to find out as soon as possible since failure to comply may result in The Pensions Regulator taking legal action against your business. In worst cases, companies can face heavy fines.

What you need to know straight away

All workers earning in excess of £10,000 a year and aged between 22 and the State Pension Age must be auto-enrolled into a workplace pension scheme.

From 06 April 2018, minimum employer contributions will double – from 1% to 2% - for all qualifying employees. This, the second of three auto-enrolment phases, will also require all staff to increase their contributions to a minimum of 3% of their gross salary (before Income Tax and National Insurance Contributions), making a total of 5% being paid into their workplace pension pot.

The final phase, which takes effect from 06 April 2019, will see contributions raised again: another 1% for employers, a further 2% for employees, so that a combined 8% per annum will be paid into the pension scheme from thereon.

What is auto-enrolment likely to cost my company?

As a business owner, the overall cost to your company will depend on two factors: first, the number of qualifying employees and, second, the size of their respective salaries. As a simple example, someone you employ on a salary of £36,000 a year will cost the company £360 in contributions in the 2017-18 tax year. Next year (2018-19), the company will need to find £720 for that same employee and, in 2019-20, it will rise again to a peak of £1,080. Every business will, therefore, face additional costs for which they will have to budget.

What will happen if I don’t comply?

If you fail to comply with your obligations as an employer, you will receive a letter from The Pensions Regulator outlining what you need to do. Failure to respond will lead to a statutory notice compelling you to pay any missed employer contributions – plus interest charges.

If you continue to break 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 people you have on your payroll.

The message to employers is clear – plan ahead to budget for the inevitable increase in costs that will arise from auto-enrolment.

As it stands, this is the final phase of auto-enrolment and the rollout of the final two phases is estimated to result in an extra £17bn per annum saved in workplace pension schemes by 2019-20.

Get in touch

To discuss how auto-enrolment changes may affect your business, or any other aspect of your employee benefits package, give me a call on 01483 205890.

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