All Business Owners To Read!
Have you heard of Auto Enrolment? If not or if you have, but have put it on the ‘to do’ list, I would suggest you need to consider this issue a priority now. Auto Enrolment is a new type of pension arrangement all employers have to provide their employees by their ‘staging date’. The largest companies in the UK have already implemented Auto Enrolment over the past few years. Since the beginning of the year, I have been helping my own and Grosvenor Consultancy clients complete their obligations. There is much to learn!
This pension is different because of the ‘mandatory nature’ imposed on employers. You have to offer a scheme, you have to pay into it and employees have to be enrolled (they can opt out if they wish, but to date more than 90% have not). Encouraging an employee to opt out will result in fines and the employee has to sign to say they fully appreciate they are effectively taking a pay cut, by opting out.
I’m finding some employers falling into the trap of thinking, how different can this be? They are assuming existing company systems such as payroll, HR records, salary structures, pay frequencies and timing will all cope with the new rules and arrangements with the minimum of modification.
Step 1 for employers is to find out their staging date. Rule 1 – Start making preparations – I suggest at least 6 months before the staging date.
In order to prepare for Auto Enrolment, employers need to start considering the following issues: –
- Who in the current workforce will take responsibility for instigation and ongoing administration?
- Do they have the necessary skills and experience?
- Categorise your workforce – who are Eligible, Non-Eligible and who are Entitled?
- What will be the cost of employer contributions during the phasing stage & at full contribution stage?
- Is the existing payroll system compatible?
- Consider the timing of pay day and when pension contributions have to be paid?
- The impact of cost of the 4 different definitions of ‘pensionable earnings’ for Auto Enrolment?
- Do different categories of employee have different needs in terms of pensions?
- The degree of responsibility the employer feels towards their employees?
- What the rate of staff turnover is in the company and its impact on Auto Enrolment?
- Adjustments to contracts of employment
This is just the beginning of the journey. It’s not a one off piece of work that once completed can go on a shelf; The toolkit if that is a way to view it, remains open. It will require attention as frequently as payroll maybe more. Companies that have not previously offered pensions, will have to recognise the number of hours work required each month. Those that have, will have to adapt to a new way of working – one which has potential litigation written all over it if rules are breached. To find out what ‘tools you need’ consult a financial adviser.
Author: Phil James, Grosvenor Consultancy Ltd
There are advantages and disadvantages to using all of these strategies and they depend on individual circumstances so don’t take action without seeking competent advice. Tax rules, rates and allowances are all subject to change. The Financial Conduct Authority does not regulate tax advice and some forms of offshore investments. The value of investments and the income from them can fall as well as rise and you may not get back the full amount you invested.
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