You might have seen the term auto-enrolment floating around a lot but not been sure what it really means to your small business and your employees. With the start of 2016 on the horizon, your small business needs to be getting ready to prepare for auto-enrolment, which means you need to be fully informed about what you need to do, and how best to prepare your employees.
To make sure you’re not leaving anything until the last minute, and you’re giving your employees plenty of warning, here’s a little introduction to get you started.
What is it?
Auto-enrolment is a relatively new government scheme which aims to help people save money through a compulsory workplace pension scheme (remember Workie – “the physical embodiment of the workplace pension scheme”). By 2017 every employer will be legally obligated to complete a pension scheme for every eligible employee.
The main reason that the government have introduced the initiative is that people who reach pension age often have not made sufficient provisions to top up their state pension. The government wants people to get used to saving for the future as the percentage of pension-age people increases.
People working in the UK, aged between 22 and the state pension age and that earn more than a set threshold (£10,000 per year) must be automatically enrolled. Even if an employee doesn’t want to be enrolled, you must first enrol them in your pension scheme and then allow them to opt out. These employees will then be automatically enrolled again in three years’ time.
What do you pay?
Up until 30 September 2017 the total contribution that must be paid to the pension scheme is 2% of the employee’s earnings, of which the employer must pay 1%. It has been proposed that these minimums will increase for a year to 5% and 2% then increase further to 8% and 3% from 1 October 2018.
When should I auto-enrol?
The set – or “staging” – date for enrolment varies depending on the number of employees. Most small businesses (those with less than 30 employees) will be allocated a staging date between 1 January 2016 and 1 April 2017, so keep an eye on your mail folks!
You need to make sure you give yourself plenty of time to get ready for the date. You will receive your staging date about 12 months prior to it, so it’s best to get to work immediately. The first thing to do is find a suitable pension provider and notify your employees.
Have you completed auto-enrolment? We’d love to hear from you – leave your comment in the section below!