Auto-Enrolment – The next steps

In our previous article Auto-Enrolment – Getting Started, we covered the initial actions to be taken on the road to meeting your auto-enrolment obligations. In this article we will cover the assessment process and the contributions payable.

The costs to you of auto-enrolment will depend upon the types of workers you have in your business and this can include casual workers and other non-employees who are entitled to the core employment rights (These people are not covered in this article and we recommend you take advice in relation to these workers).

There are three categories of workers: eligible jobholders, non-eligible job-holders and entitled workers. It is eligible job-holders who you are required to enrol automatically, whereas the other two categories can opt in to the scheme, but if entitled workers opt in, you are not required to make employer contributions for them.

An eligible job-holder is a worker who is:

  • Aged between 22 years and the State Pension age
  • Earning over the earnings trigger. The level of the earnings figure is reviewed annually and is set for each tax year. The figure is £10,000 for the 2015/16 tax year
  • working or ordinarily working in the UK
  • not already in a qualifying pension scheme

All employers will be required to contribute at least 3% of the eligible job-holders qualifying earnings. However, the contributions are being phased in with contributions starting at 1% for employers (provided the staging date is prior to 5 April 2018) before rising to 3% in April 2019.

There is a total minimum of employers and employee contributions of 8% from April 2019, but workers contributions will start at 1%, but the key issue is that employers will have an additional cost of 3% from April 2019, together with the administration costs of setting up and running the scheme.

The contributions will be due on qualifying earnings, which for 2015/16 will be earnings between £5,824 and £42,385. The thresholds will be reviewed annually, but please note the thresholds have to be considered for each pay period (whether this is monthly, weekly or any other pay period) in isolation and not on a cumulative basis.

Earnings includes all cash elements of pay including overtime, commissions, bonuses and statutory payments such as sick pay etc.

For example, let us assume that Eric earns £2,000 per month salary, but he then receives a bonus in May 2019 of £3,000. Assuming the thresholds do not increase from 2015/16, the contributions payable would be as follows:

Apr 2019May 2019
Amounts above the lower threshold but below the higher threshold
Employer – 3%£45.42£91.38
Employee (net contribution) – 4%£60.56£121.84
Tax relief on employee contribution – 1%£15.14£30.46

The total cost of auto-enrolment will depend upon your employee mix and make-up of the earnings. There are some options available to you in respect of earnings basis and salary sacrifice schemes can be considered in order to reduce the National Insurance contributions for both employers and employees.

If you would like Essex Abel to assist in the assessment process, we can calculate the costs based on your current eligible job-holders and review the options with you to help you understand the costs involved.

In the next article, we will cover the communications that you as an employer must send to your workers as part of the auto-enrolment process or see The Pension Regulator for more information or download our Employers Guide to auto-enrolment.

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. Neither Essex Abel Ltd nor the author accept any responsibility whatsoever for any action taken based upon the information included in this articles.

This article was updated (08/12/2015) to reflect recent changes.