Between October 2012 and February 2018 employers will need to start automatically enrolling all of their 'eligible jobholders' in a pension scheme which meets minimum requirements. Employers will need to assess their workforce to determine who is an eligible jobholder. They must put processes in place to ensure workers are enrolled once they become eligible, and that those who have opted out are re-enrolled every three years.
Who are 'workers'?
Employers will first need to identify their 'workers'. Workers include apprentices, employees, temps, people on a service contract and agency workers paid by the employer. It is the reality of the relationship between the worker and employer that is important – not the job title. This means that all but the truly self-employed are likely to be covered.
Who are 'jobholders'?
Employers will then need to consider which workers will also be 'jobholders'. Jobholders are those workers:
- working or ordinarily working in Great Britain – if there is any uncertainty the Regulator suggests a good rule of thumb is to consider whether the worker is entitled to the minimum wage;
- aged between 16 and 75; and
- earning between £5,772 and £41,865 (as at 2014/15). Earnings include salary, commission, bonuses, overtime, statutory sick pay and maternity, paternity and adoption pay. These amounts will be reviewed each year.
The auto-enrolment requirements only apply to 'eligible jobholders'. These are jobholders aged between 22 and the state pension age who earn more than the income tax threshold.
Employers will need to monitor the earnings of workers earning below the income tax threshold over a rolling 12 month period. A spike in earnings may result in a jobholder needing to be auto-enrolled. This may happen if the jobholder is paid a bonus or overtime.
Eligible jobholders who are not already enrolled in a pension scheme which meets the minimum requirements will need to be automatically enrolled in such a scheme within one month of becoming eligible. Once enrolled, employers must continue to contribute for as long as the worker earns, even if his earnings dip below the income tax threshold.
Jobholders under 22 or over the state pension age who pay tax, and those who earn between £5,772 and the income tax threshold, can choose to join the scheme even though they are not eligible for auto-enrolment. The employer will need to make contributions for those workers.
Workers earning less than £5,772 can apply to join a registered pension scheme chosen by the employer. The scheme does not need to meet any criteria and the employer will not need to contribute. Employers should be ready to deal with these applications.
Employers can postpone the automatic enrolment process for three months, but they will need to tell workers they are doing so. Workers can choose to join the scheme during this period if they wish. Employers with short-term temporary workers could consider using this option.
Jobholders enrolled in a pension scheme can opt out at any time. If a jobholder opts out within one month of joining, the employer must refund that jobholder's contributions within a further month. Jobholders have the chance to rejoin the scheme once every 12 months.
Employers will need to re-enrol any jobholder who has opted out of the scheme every three years.
Monitoring and record-keeping
Employers need to put processes in place to monitor when workers become eligible for auto-enrolment and when those who have opted out need to be re-enrolled. Employers may want to consider auto-enrolling all of their workers to reduce the need to monitor. Any employer reviewing its payroll system should consider building in auto-enrolment processes at the same time.
Employers will need to keep records about workers who join the pension scheme for at least six years. Records should include the name, date of birth and earnings of each joiner as well as opt-in notices. Opt-out notices must be kept for four years.