What is auto-enrolment?
Definition of auto-enrolment
Auto-enrolment, short for ‘automatic enrolment for workplace pensions’, is a UK government initiative that requires all employers to automatically enrol eligible employees into a workplace pension.
Under auto-enrolment the provision of a pension scheme is compulsory for all UK employers with workers aged between 22 and the state pension age, other than directors who don’t have contracts of employment. A worker is defined as an individual who has a contract of employment or has a contract to perform work or services and is not undertaking the work as part of their own business operations. For more information about identifying whether or not an individual is a worker check out this guide from the Pensions Regulator.
Auto-enrolment staging dates
The deadlines for setting up an auto-enrolment workplace pension scheme are known as ‘staging dates’. They are being introduced gradually according to employers’ PAYE reference numbers to give smaller businesses more time to prepare.
Auto-enrolment pension scheme contributions
The minimum level of contributions into the pension from both the employer and employee are set to increase gradually over time to give everyone involved the chance to get used to the new initiative.
|Date||Employer's minimum contribution||Total minimum contribution (employer + employee)|
|Up to 30 September 2017||1%||2%|
|1 October 2017 to 30 September 2018||2%||5%|
|1 October 2018 onwards||3%||8%|
All employers must enrol eligible employees into a company pension in time for their staging date or face a penalty from the pensions regulator. Employers cannot opt out of the scheme on their employee’s behalf or actively influence an employee’s decision to opt out. In the case that a business feels that they need more time to get ready, there are a few postponement options available.
Does your payroll software handle auto-enrolment?
FreeAgent's payroll includes full auto-enrolment functionality, which automatically flags eligible employees based on their age and earnings and highlights these employees on the Payroll Dashboard.
Got questions? Ask Emily!
FreeAgent's Chief Accountant Emily Coltman is available to answer your questions in the comments.