autoenrolment Qs & As (44)
automatic enrolment in a nutshell
by Roderick Ramage, solicitor, www.law-office.co.uk
first posted on this site on 31 December 2013
This article is not advice to any person and may not be taken as a definitive statement of the law in general or in any particular case. The author does not accept any responsibility for anything that any person does or does not do as a result of reading it.
Automatic enrolment in a nutshell.
From 1 April 2014 all employers with 250 of more in their PAYE scheme will have reached their staging date and by July 2014 it will be 50 or more.
AE applies to “jobholders”, who are employees and other workers aged 16 and over but under 75 with qualifying earnings, “QE”, which means the band of earnings from £5,668 to £41,450 pa (expected to be £5,772 to £41,865 for 2014/15).
Jobholders aged 22 and over and not over state pension age with earnings over £9,440 pa (expected to be £10,000 for 2014/15) must be AE’d. Jobholders outside that age band may enrol voluntarily, but, if their earnings are below the QE band, the employer need not pay contributions.
An AE scheme must satisfy the “quality requirement”, which, for money purchase (or defined contributions), will require total contributions, from October 2018, when AE will be fully in force, of 8% of pay, of which the employer must pay a minimum of 3%: from October 2017 the rates will be Er 2% and total 5%, and until then they are Er 1% and total 2%. There are alternative criteria, both DC and DB.
Qs & As
Here is a selection of questions asked by clients and outlines of answers.
Q1 How do I know when AE applies to my business?
Your “staging date” is when AE duties apply to you. You can find a table of the dates in the Employers’ Duties (Implementation) Regulations 2010 and on numerous websites. Note that the numbers in the left column of the table in the regulations refer not the number of your employees but to the number in your PAYE scheme, so a small employer’s staging date might be earlier than expected.
Q2 If an employee’s pay fluctuates and falls below the trigger amount does he or she fall out of AE?
No. Once enrolled, the effect on fluctuations in pay is on your employee’s and your contributions, which, unless you adopt one of the alternatives, are based on the employee’s QE in each pay review period, so there may be weeks or months in which these employees pay no contributions.
Q3 How much must I pay? May I and my employees pay more?
The minimum rates are in the nutshell summary above. There is nothing to prevent you from paying more. Your employees may pay more voluntarily, but, if you deduct more from an employee’s pay than the minimum, you could be liable for a claim that the excess is an unlawful deduction from wages, unless you have the employee’s written consent. One solution could be to have two sections in your AE scheme, one to provide the minimum to comply with the AE requirement and the other, non-AE, for employees who wish to pay more and for whom you wish to pay more, to avoid the risk that, if your contributions to an AE scheme equal or exceed the minimum total rate, the employees would not be compelled to pay anything.
Q4 I use agency workers. Who must AE them?
You, if you pay them and they are in your PAYE scheme, but the agency, if they are paid by the agency supplying their services.
Q5 A lot of my employees are part time or have zero hours. Must I AE them?
Yes. AE does not depend on hours worked but on pay. If an employee or other worker at least 22 years old but not over state pension age has earnings at the rate of over £9,440 pa in the relevant “pay review period”, he or she must be AE’d.
Q6 Must I AE employees who have another job?
Yes. Each employer is under a separate obligation for its own employees. It makes no difference to your obligation that an employee also works for one or more other people or is or is not already a member of an AE scheme.
Q7 Must I AE my company’s directors?
If the director is simply an office holder, AE does not apply, but it does apply if he or she is also employed by the company. If you were the director and the company has no other employees, AE would not apply to you.
Q8 Most of my employees belong to my company’s existing pension scheme. Does AE apply to them?
No, if your existing scheme is a “qualifying scheme” and Yes, if it is not. A qualifying scheme is a pension scheme which (a) is an occupational or personal pension scheme, (b) is registered with HMRC and (c) satisfies the “quality test” (see the nutshell summary above).
Q9 Does AE change my contracts of employment?
No. The AE obligation applies whatever your employment contracts say. Your employees remain entitled to any contractual pension rights that are better than the AE rights. The Employment Rights Act 1996 s1 entitles employees to particulars of pensions, so existing statements and contracts will need to be altered for AE. Most employers need two or three sets of pension clauses: (a) for new joiners; (b) for existing employees who are not members of any pension scheme; and (c) for existing employees, who are members of a qualifying scheme and whose terms might be altered but only to take effect if and when the scheme ceases to be a qualifying scheme or the employee ceases to be a member of it.
Q10 Is opting out the only way for an employee to leave my AE scheme?
No. If an employee misses the date for opting out or later decides to leave the scheme, there is an alternative. He or she can cease to be an active member in accordance with the scheme’s rules. Section 160 of the Pension Schemes Act 1993 remains in force, so any terms in an employee’s contract requiring him or her to be a member of a pension scheme is void. Therefore employees can still leave the scheme. Automatic re-enrolment applies in both cases.
Q11 Can I avoid monitoring employees age and pay for AE by simply enrolling everybody?
This is sometime talked of as “contractual enrolment” and, if it works, reduces the monitoring you must do. It cannot be guaranteed to work because of the s160 restriction in Q10, so if any employee decides not to stay in the scheme, you will have to monitor him or her for AE. One solution, but expensive for you, would be to enrol all employees into an AE scheme with no employees’ contributions.
Q12 What has happened to stakeholder schemes?
The need to provide a stakeholder scheme ceased on 1 October 2012, but existing schemes continue, unless your employees withdraw their requests for the deduction of their contributions from pay. Your stakeholder scheme might be suitable for AE – even if your insurer or consultant wants to provide a new scheme.
copyright Roderick Ramage
click below to