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As mentioned in the previous post in this series, big changes have come to the way employers in the UK compensate their employees. Therefore, it is necessary that companies take a close look at their current processes, understand what these new rules mandate and ensure they are able to comply with these and any future legislative changes. We previously discussed the introduction of the Real Time Information system, requiring that employers submit all payroll information to HM Revenue & Customs in real time as employees are compensated. Another major change companies employing staff in the UK must contend with is the ongoing implementation of Auto-Enrollment for pensions.
Rather than just offering a pension scheme and giving employees the choice of whether they want to participate in not, this new Auto-Enrollment regulation mandates that all employers are required to enroll each qualifying employee in the UK’s National Employment Savings Trust (NEST) or their own pension plan. The goal of this legislation is to ensure qualified employees have access to retirement plans, particularly those who did not previously have coverage or did not earn enough to participate in a pension scheme. To qualify, employees must be more than 21 years old but below the State Pension Age, earn more than £10,000 per year and work in the UK. Employees aged 16-21 or over State Pension Age but below 74, or employees earning £5,772-£10,000, will not be automatically enrolled but can ask to join their employer’s pension scheme. Still, employees have the right to opt out of participating in a pension scheme, and the employer is required to inform them of this right.
The Auto-Enrollment mandate first went into effect in 2012 and will continue to be phased in through 2018, entailing that employers understand when they must implement the law and what they can do to ensure full compliance. And, as there are significant fines and penalties for organizations that fail to comply, it is crucial that they get it right and make the necessary changes on time.
As with any regulatory change, ensuring compliance with this law can be difficult. For instance, employers must ensure that they implement the law at the appropriate time, as determined by the staging dates laid out by the UK’s Pensions Act of 2008. Moreover, employers must then re-enroll their eligible employees every three years. The law also requires that they abide by the minimum requirements for pension contributions, currently dictating that the employer and employee alike each contribute one percent of the individual’s salary. As the rate for minimum contributions will increase in the coming years (requiring a minimum employee contribution of 5 percent and employer contribution of 3 percent), it is crucial that employers are well prepared to make these adjustments when necessary.
As the newest changes to compensation laws in the UK continue to go into effect, it is critical that employers understand their responsibilities and have the tools and expertise to comply – not only today, but as these laws continue to evolve. That’s why it is important to work with a payroll provider that stays up to date with the latest payroll regulations and can help your company navigate them successfully.
