For many employers, the Auto-Enrolment Pension Scheme changes their responsibility to help employees prepare for retirement. The vast amount of legislation surrounding the topic and some level of misunderstanding from companies has made the matter confusing for many firms.
However, this simple guide should help you support your employees and not get caught out or fall short of your duties.
Who counts as a worker?
For the sake of the Auto-Enrolment Pension Scheme, a worker is anyone who is under a contract of employment or has a contract to perform work or services personally, which isn't part of their own business. Employers are required to adhere to offer pension support for anyone fitting into these categories, which may include some agency workers depending on their contract.
It's also worth noting that contracts can be verbal and the terms can be implied rather than explicitly stated. It's important that you understand your contractual obligations to both employees and other workers who are contracted to work for you, as you then need to determine what type of worker they are.
There are two main categories of worker that an employer has a responsibility to under Auto-Enrolment; jobholders and entitled workers. The former can then be divided into eligible and non-eligible jobholders.
- Eligible jobholders are automatically enrolled under the scheme. They must be 22 years old but under state pension age and working in the UK. Their earnings must reach the threshold outlined by the Department for Work and Pensions (DWP) and reviewed annually.
- Jobholders are not eligible for automatic enrolment because of their age but can choose to opt into the scheme. They must also work in the UK but their earnings don't have to exceed the threshold in all instances.
- Entitled workers are free to join a pension scheme but wouldn't automatically be enrolled because their earnings fall below the standard threshold. They must also work in the UK.
What do employers have to do?
If you have at least one worker, you need to declare your compliance with The Pensions Regulator online. You will then have differing responsibilities depending on how your workers are classified.
Employers must automatically enrol any eligible jobholders into an automatic enrolment scheme from the eligible date. You will also need to provide them with information about their enrolment and their right to opt out and back in should they remove themselves. If an eligible jobholder chooses to opt out of the scheme, employers must still support them, including re-enrolling them every three years and paying employer contributions.
Non-eligible jobholders don't need to be automatically enrolled but should be given information on how to opt into an automatic enrolment pension scheme. If they choose to opt in, the non-eligible jobholder must give the employer an ‘opt-in notice’ and you should then enrol them and follow the standard process including paying employer contributions.
Entitled workers also don't need to be enrolled automatically but have the same right as non-eligible jobholders to join a scheme. Employers must give information about their rights to an auto-enrolment scheme and if they choose to opt in, entitled workers must complete a ‘joining notice’. The employer must then arrange membership of a scheme for them and deduct the worker's contributions. However, employers don't have to make a contribution to the scheme.
More information can be found on how workers are classified or preparing for auto-enrolment on The Pensions Regulator website.