What is auto-enrolment?
Since April 2012, employers in the UK have been required by law to provide a workplace pension scheme and automatically enrol eligible workers into it. This process, known as 'automatic enrolment', aims to make it easier for workers to save for retirement by removing the need for them to handle the administration themselves.
An employer's automatic enrolment duties begin on the day their first worker starts work. From this date onwards, employers must provide a workplace pension scheme and enrol all eligible staff.
It's called 'automatic' enrolment because you must enrol workers even if they've expressed that they don't want to be part of the scheme. If the worker doesn't want to remain in the scheme after being enrolled, they can 'opt out' within 30 days and receive a full refund of any contributions.
Who should be enrolled?
All workers on your payroll need to be assessed in each pay period to determine which of the following three categories they fall into:
Eligible jobholder
Non-eligible jobholder
Entitled worker
It is an employer's duty to enrol anyone who falls into an 'eligible jobholder' category into the workplace pension.
Eligible jobholder
An eligible jobholder:
Aged between 22 and State Pension Age.
Earns over £833.33 per month (£10,000 per year).
Normally works in the UK (including workers who are based in the UK but travel abroad to work).
If workers are eligible, you must enrol them into a qualifying pension scheme and inform them within 6 weeks. The pension scheme contribution must be a minimum of 8%, with at least 3% contributed by the employer.
Non-eligible jobholder
A non-eligible jobholder is either:
Aged between 16 and 21 years old, or between State Pension Age and 74 years old.
Earns over £833.33 per month (£10,000 per year).
Normally works in the UK (including workers who are based in the UK but travel abroad to work).
Or:
Aged between 16 and 74 years old.
Earns between £520 and £833.33 per month (£6,240-£10,000 per year).
Normally works in the UK (including workers who are based in the UK but travel abroad to work).
A non-eligible jobholder can choose to 'opt in' to the workplace pension scheme. If they choose to opt in, then as with an eligible jobholder, you must contribute the minimum 3% employer contributions.
Entitled worker
An entitled worker:
Aged between 16 and 74 years old.
Earns less than £520 per month (£6,240 per year).
Normally works in the UK (including workers who are based in the UK but travel abroad to work).
An entitled worker can choose to 'join' a company pension scheme, but there is no minimum contribution for an employer. The pension scheme doesn't need to be a qualifying scheme and the employer can choose not to contribute at all.
Exceptions for directors
There are three exceptions to automatic enrolment for directors:
Sole-director companies: If the company has only one director and no other workers, it's not considered an employer for automatic enrolment purposes.
Multiple directors with no workers: If a company has more than one director but no other workers, and at least one director has a contract of employment, they can choose to opt out of automatic enrolment.
Director without a contract of employment: A director who doesn't have a contract of employment (explicit or implied) is not classified as a 'worker' and is therefore exempt.
Directors who are exempt can still choose to opt into a pension scheme voluntarily.
How PayFit helps
Payfit automatically assesses your workers' eligibility in each pay period, and notifies you via the required actions when it is time to auto-enrol a new worker. For more information, please refer to our Help Centre article.