In an attempt to tackle the challenges associated with an ageing population, the government introduced the Pension Act 2008, imposing legal duties on employers to automatically enrol eligible staff into a workplace pension scheme to help employees save for their retirement. The project is being staged over six years, starting with larger companies first.
However, this month marks an important deadline for small business owners. As of June 2015, Auto Enrolment duties have been extended to businesses with fewer than 30 employers. With thousands of small businesses in the UK obliged to comply with the new regulations, firms will have to be informed about Auto Enrolment and workplace pensions, or they risk breaking the law.
Indeed, recent figures released by The Pensions Regulator showed that enforcement action over Auto Enrolment has significantly increased during the first six months of 2015, with record levels of fixed penalty notices issued to employers who have failed to comply with the legislation. This highlights the need for businesses to get informed and take action.
It is smaller employers in particular who will find setting up and running a pension scheme for staff for the very first time more of a challenge. But the right preparation will set businesses up for the long run.
To help navigate the change, leading business software and services provider Sage UK has provided a step-by-step guide on how businesses can prepare for Auto Enrolment.
Plan for your staging date well-ahead of time
The message for small businesses is clear: start preparing early to ensure a smoother transition when the time comes to enrol staff. We recommend that businesses are spend at least 12 months preparing.
As the Auto Enrolment “to-do” list can be time-consuming, it’s essential to set aside time in order to avoid fines for late staging.
Establish when your staging date is well in advance, understand your responsibilities and the impact it will have on your business, and then work backwards from there. Remember to factor in the extra time required to plan finances, sort out administration as well as integrating payroll into a pension scheme. Although the tasks involved may not be huge, they may take longer than anticipated to complete especially when dealing with pension providers or other third parties.
If you don’t know your staging date, it can be found at the Pensions Regulator’s website using a PAYE reference. For those firms who don't pay staff through a PAYE scheme, their staging date will be 1 April 2017.
Assess your workforce
The scheme requires businesses to enrol all qualifying UK staff – those aged between 22 and the state pension age, and that earn at least £10,000 a year during the 2014/15 tax year – into a pension scheme, and pay contributions into it. Take time to assess which of your employees are eligible as you prepare to manage the transition to Auto Enrolment.
Review your current pension arrangements
For a business which may already has a pension scheme in place, it’s important to find out whether that scheme meets the requirements set out under the new legislation.
Many small businesses, especially micro employers who may have only one employee, are unlikely to have a pensions scheme already set up. In this case it’s essential to assess the options available early on, which may require the help of an independentfinancial adviser, an accountant or your payroll provider. Take the time to decide which pension scheme is right for your staff. We recommend that small businesses look for a pension provider that enables them to manage the process online and which integrates with their payroll system.
As the deadline for Auto Enrolment rolls closer, demand for pension providers is going to rise significantly. While it's unlikely that any companies will turn away businesses because of their size, getting staff enrolled into a scheme well ahead of time is wise.
Communicate the changes to your workforce
Under the pension reforms, employers have a duty to ensure their staff are informed about the changes taking place. Communications may also come from pensions or payroll providers.
Whilst employers are not allowed to point an employee in any particular direction, they are accountable for making their workforce fully aware of their options and managing their expectations in advance.
Use correct software for the heavy lifting
Using up-to-date software can help to take the headache out of Auto Enrolment. It can simplify the process for a small business owner, minimise the associated time and cost issues and ease the administrative burden.
Plan for your future budget
Under Auto Enrolment, businesses must pay a regular contribution into their staff pension scheme. To begin with, contribution levels are quite low, at one per cent of a worker’s qualifying earnings. However, contributions will ramp-up year-on-year. By 2018 businesses will have to pay a much higher minimum of three per cent into their employee’s workplace pension.
As many small business owners aren't likely to have a pension fund already accounted for, it is worth building this extra cost into financial projections and bear in mind how this will affect future cash flow.