Automatic enrolment: What business advisers need to know about payroll
The law on workplace pensions has changed. Every employer with at least one member of staff will have new pensions duties. This means they must automatically enrol eligible staff into a workplace pension scheme and make contributions towards it.
This article was provided by the Pensions Regulator in April 2015 and updated in June 2015.
The Pensions Regulator is the UK regulator of work-based pension schemes. They work with trustees, employers, pension specialists and business advisers, giving guidance on what is expected of them.
Those advisers who do not currently run payroll on behalf of their clients may not be aware of the payroll issues which their clients may experience when complying with their automatic enrolment duties. The content below provides some useful information to pass on to clients to help them ensure that their payroll software works as smoothly as possible to facilitate a simpler automated management of automatic enrolment tasks.
Advisers who plan to act on behalf of their clients in terms of payroll requirements need to check that the software they use is designed to carry out all the automatic enrolment tasks that will help them comply with their ongoing employer duties, including being able to send enrolment and contribution data to the pension provider in the right format.
Payroll software suitable for automatic enrolment will:
- hold information required for automatic enrolment, including staff name, address, date of birth and earnings, so employers pay the right amount of pension contributions for the right person at the right time
- generate the correct worker contribution and data in the format that pension providers require
- assess staff to see who needs to be automatically enrolled in each pay cycle
- calculate contributions for both the employer and staff, and then deduct the staff contributions from their pay, and
- if possible, produce worker communications like letters to inform workers of their rights.
Steps for getting your clients’ payroll system ready
One important point to raise is the need for business advisers to ensure that clients understand the various steps that need to be taken to comply and to be clear on just who is responsible for handling each of them. It’s all too easy for a task to fall into the gaps if no-one has double checked just who is doing what.
You and your client will need to be ready to follow the following steps on their staging date and potentially every pay cycle after staging (where required):
- Assess staff to find out who to automatically enrol
- Calculate staff and employer pension contributions and deduct the staff contributions from their pay
- Send the pension scheme provider the information they require
- Tell staff about automatic enrolment by letter or email
- Pay over pension contributions to the pension scheme by the deadlines they have specified
- Allow staff to opt in or join a pension scheme
- Manage opt-outs within the opt-out period and promptly refund contributions
- Complete a declaration of compliance with The Pensions Regulator
- Keep records, and
- Automatically re-enrol all eligible staff every three years.
Testing whether your client will be ready
The following table covers the main areas that your client’s payroll system, and the way in which it interacts with their chosen pension scheme, should be tested ahead of their staging date.
|Ownership||- who will be responsible for handling each of the tasks listed in the above 'steps for getting your clients' payroll system ready'?
- if a task is being carried out by a third party, such as a payroll bureau or accountant, are both they and the employer clear on what they're expected to do and by when?
|Staff information||- are the details (full name, address, email, date of birth, NI number) for all staff correct and up to date?|
|Pay reference period||- which type of pay reference period is supported by the employer's payroll system – calendar-based or tax period based – and is this accepted by the chosen pension provider?|
|Data format||- can the employer's payroll system generate data files that are compatible with the pension provider's system?
- has the employer processed a dummy run ahead of their staging date and sent test data to their pension provider and have they reported any errors?
|Assessing staff||- is the payroll system set up to identify and flag which pay elements are qualifying earnings?|
|Contributions||- will the pensionable pay elements have been identified and flagged? NB: This may not be the same as qualifying earnings unless the pension scheme defines pensionable pay as qualifying earnings.
- is the payroll system set up to deduct the correct levels of contributions?
|Tax relief||- how does the pensions scheme apply tax relief?
- does it use tax relief at source or a net pay arrangement?
- is a salary sacrifice scheme in place?
|Telling staff||- has there been a test run of different types of letters that will need to be sent to the different types of staff? (The Pensions Regulator has template letters – see tpr.gov.uk/writing)|
|Timing||- will the data be sent to the pension provider at the right time?
- what day does the provider need to receive the information?
- will payroll need to run earlier in its cycle to allow time and letters to staff?
Keep up to date with the latest news and information
There are a number of additional tools and resources available to you to tap into for additional help and information on workplace pensions:
News by email: Spotlight on Automatic enrolment. The Pensions Regulator’s monthly e-newsletter includes a combination of news stories, educational features and current updates on new products tools, and guidance. Sign up for news-by-email
LinkedIn group. Join The Pensions Regulator’s LinkedIn group for a forum where you can share tips and news on automatic enrolment with your fellow business advisers who are part of the group. The regulator also hosts live Q&A’s, where automatic enrolment experts are online and ready to answer your queries. Join the group
Further resources on Auto enrolment
Find out more about auto-enrolment from our dedicated page at icaew.com/auto-enrolment
Our auto-enrolment page includes updates from the Pensions Regulator, details of events and guidance from ICAEW.