Payroll and the challenges of auto-enrolment

By QuickBooks UK

3 min read

Auto-enrolment and payroll will impact every small business owner. In an effort to remain compliant, what are the key challenges you will face when trying to implement a pension scheme?

Keeping on top of changing government employee legislation and red tape is an uphill battle that requires constant monitoring. One of the key issues facing UK small business owners today is how to organise and coordinate pension schemes for their staff under the so-called ‘auto-enrolment’ regime. This means that certain staff members are automatically enrolled into a work pension scheme by their employer, unless they actively choose to opt out.

Employers not only have to find a suitable pension scheme to place their staff into, they will also be required to pay contributions into the workers’ pensions as well.

The amount businesses must pay starts at one per cent of an employee’s qualifying earnings, and will rise to a minimum of three per cent over the next three years. By 2018, the employees’ contribution will be five per cent, making total joint pension contributions of eight per cent.

This places a great responsibility on employers because they must ensure staff understand their entitlements and that adequate information is provided so they can make an informed decision about whether they want to enrol or not.

Auto-enrolment requirements

Ignorance is no excuse when it comes to any errors or non-compliant practices in auto-enrolment. This is where quality advice, education and services such as , payments and compliance from qualified accountants and business advisers can help.

Businesses also need to understand what their own obligations are and how much they must pay into pension pots for so-called “qualifying staff”, how payroll services can help to take the strain, and ensure the transition to auto-enrolment – and subsequent administration – runs as smoothly as possible.

Co-ordination is key: any staff involved in payroll must be kept up to speed for deducting contributions, managing the opt-out process, calculating contributions from both staff and from the employer, and changing them in line with government adjustments to qualifying earnings.

Auto-enrolment staging dates

When you have to begin your auto-enrolment scheme depends on the size of your business and number of employees. Large businesses have been auto-enrolling staff since 2012 but over the coming months and into 2017, Britain’s 1.8 million small and micro businesses will have to do the same.

You can find the deadline for your size of business from The Pensions Regulator. You will need your PAYE number handy.

Which staff qualify?

Employees fit into three categories: eligible, entitled and non-eligible. As a small business owner, you will need to carry out a worker assessment to judge who falls into which categories. Once you know who must be enrolled, you can calculate how much you’ll need to pay into their scheme each payday.

However, it’s important to remember that the contributions are based on “qualifying earnings”, which is not an employees’ entire salary. It is based on a slice between £5,824 and a maximum of £42,385. These thresholds will be reviewed by the government every year.

So the minimum contribution you make will be based on earnings between these thresholds. For example, if somebody earns £20,000 a year, the minimum employer contributions will be calculated on the difference between £5,824 and £20,000, which equates to £14,176.

Clearly, having precise control over your payroll function is vital for these calculations and ongoing administration. If necessary, seek professional advice or invest in accounting software to find out the best ways of managing your payroll requirements.

For more information on auto-enrolment and how it affects your business, download our comprehensive auto-enrolment guide here.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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