Back in April 2018, all employers were required to increase minimum contributions for auto enrolment. This is known as ‘phasing’, and up until April 2018, employer contributions were 1%, as were employees’, making a total minimum contribution of 2%. But then the employer’s minimum contributions increased to 2% and the employees’ increased to 3% for a total of 5%. To complicate things further, (which the Pension Regulator never normally do) during the next phasing in April 2019 the employer’s minimum contributions increase to 3% and employees’ to 5% for a total minimum contribution of 8%. Confused yet? Of course you are! Welcome to the automatic enrolment club!
As an employer, you need to make sure that you understand how these changes will affect you, your clients and your employees. We’ve talked already about what the minimum contributions will increase to but not how this will be done. It would be nice to think that in this technological age that this update might be installed automatically on your payroll software. Guess what, you can on BrightPay, where you will be able to seamlessly handle the respective increases, with various options depending on the different scenarios. BrightPay will automatically uplift these workplace pension contributions to the minimum due, with no action required in BrightPay by the employer or payroll bureau. Other scenarios are listed here.
Be aware that some other payroll systems may require you to adjust the rates manually. To remain as a qualifying scheme, all automatic enrolment pension schemes must cater to the new minimum contribution higher rates. If you do not do this in line with the legal requirements, your pension scheme will no longer be a qualifying scheme for existing members and cannot be used for automatic enrolment.
It’s also possible that the increases will take place in the middle of a worker’s payroll period. So say your employee has a pay period from the 1st to the 30th of April with the increase effective from 6th April. In such an instance the contributions for the pay reference up to April would be calculated based on old rates, and the contributions after April 6th being based on the new rates. And employees can choose to pay more than the minimum contribution which would mean separate calculations for each one. Yes, don’t worry, I have a thumping headache and feel like I might cry too. But, we’re not done yet.
So would I be in breach of legal requirements if I don’t adjust my rates correctly to reflect the ever-changing and shifting tides of auto enrolment? But kind Sir, my only crime is being really bad at maths; how can I avoid this reproach? Well you have 3 ways of keeping up with legal auto enrolment requirements:
- You can do the calculations manually – Believe it or not there are still people in the world that decide to waste hours of their lives by manually calculating these adjustments for each individual employee each payroll. Hey, each to their own – but I can think of better ways to spend a weekend.
- You can use HMRC Basic PAYE Tools and the AE Toolkit to do the calculations – Now now, the AE Toolkit is a very useful spreadsheet if you know how to use it and don’t mind wasting a few hours. It won’t do the calculations for you but it will give you a basis of where to start and some directions on what to do.
- You could use a payroll software to do it all for you – Yes folks, there are things called computers nowadays that do the hard work for us! A dedicated payroll software will be ready to cater for the increased contributions on April 2019 and will automatically calculate the correct minimum contributions and save you from being non-compliant.
I know which option I’d pick! Remember this is mandatory and if you’re not compliant you can have action brought against you. So, if the only reason you haven’t invested in payroll software yet is that you’re trying to save some money, well then you better watch out as all those savings could quickly disappear if you’re hit with a big fat fine.
BrightPay is a dedicated payroll product that handles your auto enrolment duties automatically for you. BrightPay 2019/20 will be able to seamlessly handle the respective increases, with various options depending on the different situations. Head to https://www.brightpay.co.uk/pages/MinimumContributionIncreasesPhasing/ to see for yourself all the hassle you’ll be saving yourself from.