A study released at the end of the first quarter of 2016 revealed that it could cost start-ups and small businesses £317 m to set up an automatic enrolment pension scheme. As a tech start-up, therefore, you need to put an effort to get it right first time.
Enough of that let us get into what automatic enrolment is.
Auto-enrolment is part of the Workplace Pension Reform Plan rolled out by the government. It requires your business to enrol its employees for workplace pension scheme automatically; you as the employer pay into the plan making it a real liability to your business.
If you have employees aged between 22 years and the state pension age and you are paying them over £10,000 per annum, they are eligible for enrolment in the scheme, and you should enrol them. Your employees have the right to opt out however. So far, the startups with over 30 employees have enrolled their staff, and it is now the time for those with less than 30 employees to enrol.
Once you register your business, you must contribute a minimum of 1% gross pay. The Pension Regulators set the value in 2016, and since it will rise to 3% by 2018, you can expect that the minimum percentage is now around 2%. The law requires all staff to contribute too.
Why you should be considering auto-enrolment now
It is important for you to start looking at the requirements of auto enrolment as early as now for it can take you up to six months to establish the scheme. Though Pension Regulators claim that start-ups with less staff reported no setup cost, they state that it can cost you about 10 hours to set it up, which is valuable time.
The scheme is shifting company’s recruitment decisions. It will now cost you a little bit more to employ staff for it will include putting more time into them. You will, therefore, have to ask yourself whether you need a full-time employee, a contractor or a freelancer.
What to do to ensure that you are ready for the automatic enrolment
As a start-up, you can go through this checklist that will help you identify what you need to do to set off.
Find out your staging date
If you have less than 30 staff, then it will be some time between now and April 2017.
The simplest way to find your staging date is by visiting the Pensions Regulator’s website here (have your PAYE number ready!)
Compile a list of eligible staff
Workers who are eligible for auto enrolment will be:
- Aged between 22 and state pension age
- Working in the UK, or someone who usually does so
- Earning above £10,000
Decide your contributions
Employers are required to pay minimum contributions which rise over time from at least 1% of staff gross pay in 2016 to at least 3% by 2018. (Your staff also have minimum % contributions they need to contribute, too).
Talk to your staff
You need to communicate the changes to workplace pensions in writing to all staff that will be affected. The pensions regulator offers a range of letter templates to help with this – http://www.thepensionsregulator.gov.uk/autoenrolment-employee-communications
Register your existing workplace pension
You may already have a pension in place for your staff, in which case you will need to find out if it meets the requirements of Auto Enrolment. Many don’t, but your current pension company will be able to tell you this.
Set up a new workplace pension scheme
If you don’t have a workplace pension in place, it’s best to speak to an independent financial advisor (IFA) or pensions advisor who can help you to find the best pension scheme for your business. Or you could simply go with NEST, the government’s own scheme. Find out more here – www.nestpensions.org.uk
Set your scheme up with your payroll
Most payroll companies and software are now able to handle Auto Enrolment requirements, and many will even communicate with the Pension Regulator regularly for you.
Inform the Pensions Regulator
This should be done online, shortly after your staging date. You then need to communicate with the Regulator every time you pay staff, which your pensions company or payroll company should be able to handle.
Monitor those staff that were not eligible
And automatically enrol them when they qualify.
Re-enrol any staff who Opted Out
The law requires you to automatically re-enrol all your staff who have opted out every three years (though they are then allowed to opt out again if they wish to).
The good step to make is to seek professional advice, you can contact us at Accountancy Cloud, anytime - we have the expertise you need to help you get it right with this first time.