Have you recently hired a new employee? It can be quite overwhelming to handle all the paperwork that comes with employing someone, especially the pension 'auto-enrolment' scheme, which is a legal requirement. We've addressed some common questions that arise for new employers below:
Does my employee need to be enrolled in a pension?
Yes, if your employee is over 22 years old, below the state retirement age, and earns more than £10,000 per year.
When does the pension scheme start?
You have the option to postpone entry into the pension scheme for up to 3 months from the employee's start date. It is recommended to postpone for 3 months to allow them to settle in and complete their probationary period. However, the employee can choose to join earlier if they wish.
What if my employee doesn't want to join the pension scheme?
Your employee has the right to opt out of the pension scheme at any time, but you, as an employer, cannot encourage this. However, by opting out, they will miss out on the valuable employer contribution and tax relief provided by the government on their contributions. Every three years, eligible employees who opted out will be automatically re-enrolled, as people's circumstances can change, and they may decide to start saving again. Nevertheless, they will have the option to opt out once more at that time.
If my employee is under 22 or earns less than £10,000, can they still enroll in a pension?
Yes, employees under 22 or earning less than £10,000 can request to be part of a pension scheme, but contributions will only be deducted if they earn at least £120 per week.
How do I manage my employee's pension? I don't know where to start.
As a client of ThePayTeam, you can benefit from a fully managed service using the government's pension scheme, NEST (National Employment Savings Trust). The fee for this service is only £60 per year. If your employee chooses to opt out of the scheme before their pension begins, there will be no charge from ThePayTeam, and they will handle the declaration of compliance to the Pension Regulator. Alternatively, you can set up your own scheme and manage all administration and employee communications yourself. NEST or Smart are some of the pension providers you can use, but for advice on this matter, you would need to consult an Independent Financial Advisor. ThePayTeam can still handle the payslip calculations at no charge based on your instructions.
How much will the pension contributions cost me?
Pension contributions are calculated as a percentage of earnings. No contributions are payable on the first £120 per week or £520 per month. The employer's contribution is 3% of the remaining amount, and the employee contributes 5%, but they receive tax relief, so the deduction from their pay is only 4%. The government directly pays the tax relief into the employee's pension pot if it is a relief at source scheme like NEST.
If you are a client of ThePayTeam, you should have received a full salary illustration, which includes any pension contributions due after the 3-month probationary period. If you have any questions about this article or want to see an up-to-date illustration, feel free to contact the team for assistance.
