The law on workplace pensions has changed and they affect you as the director of a limited company; even if you are exempt or decide to opt out of auto enrolment. Every employer with at least one member of staff (including limited companies with only one director) now has new duties regarding workplace pensions.
What is automatic enrolment?
For employees, the process is automatic; they do not need to do anything to enrol for a workplace pension (hence the name), but for small businesses it is an additional administrative process that you need to prepare for now. As the director of a limited company, operating a PAYE scheme you need to take steps to make sure eligible employees are enrolled into a pension scheme. Even if you already pay contributions into a pension scheme for your employees, you still need to check if it is suitable for automatic enrolment.
It is The Pensions Regulator (TPR) that is tasked with ensuring that all employers are compliant with these new duties and they are writing to everyone with a PAYE scheme. Their guidance states that you should allow up to 12 months to prepare for automatic enrolment. If you are required to provide a workplace pension scheme (you are deemed to have eligible employees) you will need to:
- set up a pension scheme
- enrol your eligible employees into the pension scheme. Contributions to the scheme come from three places. You will make deductions from their pay, you will make employer contributions and the government will contribute via tax relief. You’ll need to make sure you contribute the right amount
- declare compliance to the Pensions Regulator.
When to prepare for automatic enrolment – your Staging Date
The Pensions Regulator is writing to all employers notifying them of their Staging Date. This is the date from which automatic enrolment duties start and when the law comes into effect for you. If you’ve not had a letter yet you can find your staging date here by using your PAYE scheme reference numbers.
You may find that your staging date is not for 1 or 2 years; don’t put off preparing for the changes. Start preparing now by ensuring you understand your duties to ensure to meet the compliance deadlines as failure to meet your obligations can result in a fine or being forced to setup a workplace pension scheme.
Workplace pensions – do you need to operate one?
As the director of a limited company, if you have employees (other than yourself) you are required to ensure a workplace pension is administered for all eligible employees and employees that want to opt into the scheme.
The workplace pension receives funding from three areas:
- The Employer (your limited company will make employer contributions)
- The Employee (through deductions from their pay)
- The Government (through tax relief).
It is the responsibility of the company i.e. you as the director, to set up and administer the pension scheme if it is required.
Who is eligible for automatic enrolment
It is important to identify any eligible employees as least 9 months before your staging date to ensure if required, a scheme is up and running by the date the new law affects your business.
The first stage of ensuring compliance is to identify anyone that is eligible in your company. We’ve outlined employees that can either opt in or are automatically eligible for a workplace pension.
| Weekly gross earnings | Monthly gross earnings | Age | ||
|---|---|---|---|---|
| 16 – 21 | 22 – SPA | SPA – 74 | ||
| £112 and below | £486 and below | Has a right to join a pension | ||
| Over £112 up to £192 | Over £486 up to £833 | Has a right to opt in | ||
| Over £192 | Over £833 | Has a right to opt in | Automatically enrol | Has a right to opt in |
What this means for your company
Automatically enrol
You must enrol these employees into your workplace pension scheme and make regular contributions as their employer. You do not need to seek their permission. The employee can decide to opt out of the workplace pension however they can only do this after they have been enrolled.
Has a right to opt in
Employees in this category can ask to be enrolled in the workplace pension scheme and you must allow them to do so. This means you will be required to make employer contributions.
Has a right to join a pension scheme
If they ask to join your pension scheme, you must provide a workplace pension scheme however as their employer you don’t need to make contributions.
Are all employers required to operate a workplace pension?
Directors of Limited Companies
Your company may not have any employees and you may just have directors. You won’t have any duties if your company meets one of the following criteria:
- you’re a sole director with no other staff; or
- your company has a number of directors and none of them have an employment contract; or
- your company has a number of directors and only one has an employment contract.
An employment contract, or Contract of Employment, is not the same as the contract you may have with a client or agency. A Contract of Employment is a contract between the company and its director(s). It could be a written, verbal or implied contract between an individual and the company.
The contract will set out an individual’s employment rights as well as their responsibilities and duties. It is an agreement under which a person consents to perform certain duties as directed and controlled by an employer in return for an agreed wage or salary.
A Contract of Employment is not the same as the contract between a company and an agency or end client. It’s unlikely that your company has a Contract of Employment, unless you have specifically put one in place. If you have or are going to put a Contract of Employment in place between the company and any of its directors, you may have workplace pension duties towards those directors, this includes giving them the opportunity to opt into a workplace pension.
What next?
This guide is designed to give you an insight to the changes and what if could mean for you. The steps to take vary depending on who is involved in your business. The following sections of this guide provide more information:
Businesses with no employees
Businesses employing a spouse or family member
Businesses with employees
Please take the time to ensure you understand your obligations by reading the relevant section and review the guidance from The Pensions Regulator to ensure you meet your obligations under the new workplace pension regulations.
