Rules surrounding pay and pensions are complicated. There are minimum wage limits as well as the requirement to make statutory payments in respect of maternity and paternity leave, sick pay, holiday pay, commission and payments in lieu.
Pension requirements have also become more difficult over recent years, with employers responsible for setting up auto-enrolment schemes and dealing with the necessary reporting and compliance.
As an employer, you are required to put staff into a workplace pension scheme towards which you also contribute, known as an auto-enrolment pension.
What is employer pension contribution?
An employer pension contribution is a percentage of an employee’s pay that is paid into a pension scheme on their behalf by their employer each month. The general rule is that employers must contribute 3% of pay, and employees 5% as a minimum.
When did employer pension contributions become compulsory?
The phasing in of auto-enrolment began in 2012 when the largest employers starting paying money into pensions for their employees. By 1 February 2018 all eligible workers should have been enrolled in a workplace pension scheme.
The Pensions Act 2008
The Pensions Act 2008 requires every employer to put members of staff into a workplace pension and make contributions alongside the employee.
Employers are required to enrol someone into their workplace pension if they are:
- aged 22 or over
- below the state pension age
- not earning more than £10,000 per year
- working in the UK
An employee can opt out if they want.
How to set up an employer pension scheme
The Pensions Regulator has an online tool available to assist with setting up a scheme. You will be required to fill in a declaration of compliance with the Pensions Regulator within five months of the start.
As the employer, provided they are earning enough, you are required to contribute a minimum of 3% of your employee’s pay, up to a maximum amount which changes year by year. Bonuses, commission, overtime and statutory pay are also included in the calculation.
The employee has to pay in a minimum of 5%, with the overall minimum standing at 8%. If you choose to pay in more than 3%, then your employee can reduce the amount they pay if they wish.
You should deduct the employee’s contribution from their pay each month and put it into the scheme by the 19th of the month if you pay by cheque or otherwise by the 22nd.
Every three years after your first member of staff joins the scheme, you should re-enrol your staff into the scheme and fill in a re-declaration of compliance.
Staff can ask to join the scheme and if they are eligible you should ensure that they are added within a month of asking. There is an opt-out window lasting one month from when they join. They can leave during this window and you will be required to refund their contributions to them within one month.
They are also entitled to leave whenever they want after this time. If they leave after the opt-out window has closed, then their contributions will remain in the fund until retirement. If they wish to re-join at a later date, they should be re-enrolled.
As an employer, you must carry out the correct legal procedures for managing the auto-enrolment scheme. The Pensions Regulator can impose penalties for non-compliance.
Other issues with pay
Issues surrounding maternity and paternity pay, sick pay, holiday pay, commission and payments in lieu are the most commonly raised. We can help you ensure that you are in the right and always protected.
How Springhouse can help
At Springhouse Employment Solicitors we can help you ensure that your pension and pay schemes are compliant. Setting up and administering an auto-enrolment scheme is not always simple. Our employment experts will be happy to discuss your needs with you and guide you through the process.
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