The new Workplace Pensions rules have applied to large employers for some time, and are now being applied to an increasing number of the smaller employers.
Under these rules, all employers who have reached their “Staging Date” have duties towards all of their staff who are:
- working or ordinarily working in the UK
- aged between 16 and 74; and who
- work under a contract of employment (i.e. an “employee”); or
- have a contract to perform work or services personally and are not undertaking the work as part of their own business
Workers who meet the above conditions fall into one of three categories.
Firstly, “Eligible workers” are aged between 22 and state pension age, and earn over £192 a week (2016/17. If the employer has staff that meet the definition of an eligible worker, then the workers must be put into a workplace pension scheme and both the employer and the employee must pay regular pension contributions. These contributions are at an increasing level and will eventually reach 3% for the employer and 5% for the employee. As the employer does not need to ask the employee’s permission to make these deductions then the worker is said to be being “automatically enrolled” into the pension scheme. The worker does have the right, once enrolled, to “opt out” of the pension, but this must be their choice. The employer must not try to influence their decision.
If there are no staff to automatically enroll, there is no need for the employer to set up a pension scheme immediately. However, the worker can still ask to go into a pension scheme. If they do this, then the employer’s responsibilities will depend on how much they earn:
- If they earn more than £112 a week then they fall into the second category of “non-eligible jobholder”. If they request to be enrolled then the employer must enrol them, deduct the employees’ pension contributions and also make contributions to the scheme as well.
- If they earn less than this, they are in the third category of an “entitled worker”. Again, you must deduct their pension contributions but you may choose whether you wish to contribute or not.
Every employer with Eligible Workers must make a Statement of Compliance to the Pension Regulator within six months of their staging date. Employers with a PAYE scheme who do not have any Eligible Workers should inform the Pension Regulator that they are not required to set up a pension scheme. Failure to comply with the Workplace Pensions rules can lead to a fixed penalty of £400 plus escalating penalties starting from £50 per day.
For more workplace pensions advice, contact us at our Warrington office.