As an employer, you’ll need to ensure that your employees are on a workplace pension. Auto-enrolment pensions automatically sign up your employees to the pension scheme that you’ve chosen for your business without them needing to ask. But what are the rules and regulations for automatic enrolment pensions as an employer? We’ve got them listed below.
What is an auto-enrolment pension?
Auto-enrolment pensions sign your eligible employees up for your business’ pension scheme without them needing to ask. They can, however, opt out of the pension scheme.
Your staff’s pension scheme will start on the day of employment and your contributions as an employer will start on the payday after this date.
What happens if my employee opts out of the pension scheme?
Your employee can ask to re-enrol in the automatic enrolment pension scheme at any time. You are also required to automatically enrol eligible workers who have opted out every three years.
If your employee opts out within the first month of their employment, they will get the money back that they paid in. As an employer, you must put them in contact with your chosen pension provider. It’s important to let staff know that if they opt out any later than this, the money paid will likely stay in their pension up until retirement.
What are the types of auto-enrolment pensions available for my small business?
There are different types of pensions that you could choose for your business. We’ve noted them below.
Defined contribution
Defined contribution is a pension pot based on how much is paid in. The money paid in is put into investments by the pension provider. This means the pension pot amount can fluctuate as it depends on how the investments are performing. This is either arranged by you as the employer or your employee can choose to go private.
Defined benefit
A defined benefit comes out of an employee’s salary and depends on the salary amount and how long they have worked for the company. How much your employee gets depends on your pension scheme’s rules.
With this benefit, your employees get a certain sum of money each year retired.
What is my auto-enrolment pension contribution as an employer?
As an employer, your auto-enrolment pension contribution can differ. It must be noted that the minimum, legal contribution to your employees’ pensions must be paid – usually by the 22nd of each month. From April 2024, an employer must pay in 3% of an employee’s salary via the auto-enrolment pension scheme. Usually, employers contribute 5% (which is 4% plus 1% tax relief) which, including the employee’s contributions’ totals the minimum amount of 8%.
You can pay a higher percentage of pension contributions if you wish.
What is the auto-enrolment pension criteria for my employees?
There is a criterion for auto-enrolment pensions so, depending on the nature of your business, not all your employees may be eligible.
If your employee earns the following amounts (or less), you will not have to pay pension contributions.
- £520 a month
- £120 a week
- £480 over 4 weeks
Need some further guidance on whether you need to pay into the auto-enrolment pension scheme? Contact our team of helpful accountants who are happy to help.
We hope this guide on automatic enrolment pensions was helpful! We have even further accounting guides for small businesses. Make sure to see our article on how to register for VAT here.