Workplace pensions and auto enrolment for your growing start-up

05 December 2017

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Taking on your first employee is a big step for a start-up business. But when you take on this first new hire there’s one hurdle you may not have considered. You’re now legally required to provide a workplace pension for this employee – as long as they meet the conditions of the new pensions auto-enrolment legislation.

So, if you’re growing fast and need an extra pair of hands on board, how do you go about setting up this workplace pension for a new employee? And how do you know if your new team member meets the conditions for supplying an auto-enrolment pension scheme?

Lucy Anstey, Payroll Manager at FD Works has pulled together the key steps for getting your pension scheme up and running.

1. Find out if your employee is eligible

The first job is to check if your employee will be eligible for a workplace pension. You must supply an auto-enrolment-ready pension scheme even if you only have one employee (not counting any directors or non-employee board roles within the business).

To determine if your new hire will be eligible, answer these three key questions:

  • Are they aged between 22 and the state retirement age?
  • Will they earn over £10k per year (£833 p/month or £192 p/week)?
  • Will they be hired as an employee by your company (rather than being engaged on a freelance/contract basis)?

If you’ve answered ‘Yes’ to all three of these, then you’re obliged to supply a workplace pension for this person under the rules for pensions auto enrolment.

It’s also important to note that employees who don’t fall inside the criteria still have the option to join or opt in to your workplace pension scheme. So it’s important that your new employee/s receive clear communications from you regarding their options.

If you have employees who don’t meet the conditions to be auto-enrolled, as an employer you still have legal duties to submit a declaration of compliance (see point 6 below).

Directors: if you’re NOT an employer, ensure the Pensions Regulator is aware of your exemption from automatic enrolment duties.

2. Find an approved pension scheme

The next step is to is to find that all-important pension scheme. This must be an auto-enrolment approved scheme that is suitable as a workplace pension scheme.

The National Employment Savings Trust (NEST) is a standard scheme provided by the Government. It meets the requirements for an auto enrolment scheme and will do the job, but there are many other private schemes that will offer you and your employee/s a range of different benefits, add-on services and costs options, in addition to running the actual scheme.

The smart move here is to talk to an independent financial adviser (IFA) who will be able to give you expert advice on the scheme, investments and options that work best for your start-up.

Get the advice you need and pick a scheme that meets your needs and your budget.

We can help you with the following duties:

  • Pension scheme set up
  • Employee assessment
  • Staging and postponement
  • Enrolling employees
  • Auto-enrolment communications
  • Pension workload (see below)

3. Keep the required records

As the business owner and employer, you have a legal duty to keep employee records for all eligible staff, and store these safely so they can be shared with the Pensions Regulator.

The key information you’ll need to record and report will be:

  • Which employees are members of your pension scheme
  • How long they’ve been members (and if they’ve opted out or in)
  • How much they’ve paid in contributions to this scheme.

Having up-to-date HR and payroll systems in the business will make accessing this employee data far easier, and will help you to meet your auto-enrolment duties.

4. Set up a payroll system

Now that you have a paid employee on the team, you’ll also need a payroll system to pay their salary. This payroll system will also make monthly/weekly pension contributions for your new employee – so it’s important that your payroll software can handle these requirements.

We use BrightPay payroll software, which has unlimited employees and is set up to handle auto enrolment as standard. Setting up your pension scheme, enrolling employees, issuing communication, making contributions and viewing reports – it’s all done seamlessly.

Once your pension scheme and payroll systems are set up, you’ll pay your employee’s contributions into the scheme on their behalf. Many employers will also choose to match some of this funding from the company’s own cash reserves, adding to the contribution level as part of an employee benefits scheme.

So you’ll now be paying your new employee their monthly/weekly salary, making their pension contributions and keeping detailed records of this activity in your payroll software.

5. Manage the pensions admin workload

There’s a fair amount of work involved in choosing the best workplace pension scheme, setting up the required payroll software and getting the whole system up and running.

But the workload doesn’t stop there.

Once you begin making contributions for your employee (and any subsequent employees) you’re legally required to monitor and review your employees to check if they’re still eligible. This means there’s an ongoing admin commitment to check the eligibility of your team, carry out the payroll run and keep the necessary records.

You may also want to consider:

  • Opting in and joining the scheme
  • Opting out and refunds
  • Ongoing auto-enrolment duties.

6. Declaration of Compliance

As an employer, you must provide information to show you’re meeting your automatic enrolment duties. This means completing a ‘Declaration of Compliance’ as soon as possible.

Even if you’ve enrolled staff into a pension scheme, your auto-enrolment duties haven’t been completed until you’ve submitted the Declaration of Compliance.

An employer’s declaration is a legal duty. If it’s not completed within five months of the start of your legal duties, you could be fined. Once we’re running your payroll, you can authorise us to do this on your behalf.

It’s worth noting that the Pension Regulator is now quick to fine non-compliance, so it’s vital to have your auto-enrolment duties completed. This is happens if you don’t comply.

Outsource your payroll to the experts

If setting up your payroll and meeting your workplace pension requirements sounds like a major headache for your business, we can help you lighten that load.

If you’re a growing start-up with plans to take on an expanding workforce, we can take on the running of your payroll, and ensure that all contributions, records and payroll checks are carried out – giving you back time to concentrate on your growth plans.

Talk to us about outsourcing your payroll workload

We’ll run your payroll and take on all payroll duties for you

Give us a call
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Lucy Anstey is the Payroll Manager at FD Works