Everything you need to know about auto enrolment

Finance Analysis
Brought to you by KashFlow
Adam Deakin
IRIS Software
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That sound you can hear is the auto enrolment staging klaxon, sounding as of 1 January 2016. If your business employs between one and 30 employees, you’re up.

More than 1.25m businesses will be staging over the next two years, starting this month, so if you’re still unsure about what exactly the big deal is or whether you’re even eligible, fear not - you’re not alone and we’re here to help.

If you’re thinking of ignoring the legislation, DON’T. Missing your staging date, not paying your contributions, and/or continuing to ignore your duties will result in the regulator taking strong action against you.

This could include fixed fines of £400 or between £5,000 and £50,000, and/or daily fines of between £50 and £10,000. By the end of 2014, 169 businesses (out of approximately 30,000) had been fined a combined total of in excess of £60,000.

But we know you’re not going to let that happen.

To assist you, we’ve compiled a handy, straightforward guide to clear a few things up and ensure you’re 100% prepared.

Why is auto enrolment an issue?

Between now and 2018, pensions auto enrolment is going to affect all UK businesses, even those with just one employee. You’re now legally required to enrol eligible workers on a suitable pension scheme.

The admin requirement

Administering an auto enrolled pension scheme takes time and effort. There’s the additional review and set-up to consider, but the bigger issue is the ongoing monthly upkeep of a far more complex payroll process. You’ll need the time (or people) to deliver this - and the right software.

People and payroll

Employees are eligible to be enrolled into your pensions scheme if they’re:

  • 22 years old or older
  • Are earning over £10,000 per annum
  • Below the State Pension Age

So, the first step is to review your workforce to see who’s eligible.

Once you’ve assessed your employees and identified those that are eligible, payroll details must be updated to ensure that the right contributions are made into the chosen pension scheme every month. This is something you’ll need to continually monitor as new employees join, employees hit the age or income requirement, or members of staff choose to opt out.

Systems and software

When managing the HR and payroll side of auto enrolment, part of the initial review process is to assess whether your business’ systems are up to the task; can your existing software cope with the additional requirements of managing pensions contributions? And, is your HR system linked well enough to supply the employee data that’s needed?

By law, employers have to provide records on:

  • Jobholders and workers: Including their name, National Insurance number, opt-in notice and joining notice
  • Their pension scheme: The employer pension scheme reference, and scheme name and address

For many businesses, this level of complexity may not be in place, so you’ll need to review, assess and possibly update the finance, payroll and HR systems in order to:

  • Deliver the right employee information and records
  • Run the more complex monthly payroll and pay contributions
  • Communicate with each other to ensure full integration of the data

Pensions and investments

One central issue is choosing a suitable pension scheme. There’s a central National Employment Savings Trust (NEST) that companies can use, but there are other options for schemes that meet auto enrolment criteria.

If you don’t feel you have the knowledge required to make an informed choice on which scheme to use, professional advice is available from independent financial advisors (IFAs), who can provide individual investment advice to your employees, so that they can make informed choices when investing their contributions as a member of the chosen scheme.

You’ll need to produce communications, firstly to explain the auto enrolment process to your workers, and also so that your they fully understand the details of their pensions contributions and why there will be changes to their pay. You must also maintain all the relevant records, which is why having the right software and the right administrative resources will save you considerable time and effort.

Eligible employees will need to be regularly reviewed, which is another ongoing responsibility - newly eligible employees or changes to workers’ circumstances must be reflected in their pensions scheme.

To make auto enrolment as painless an experience as possible, you need a solution that delivers everything your small business requires – and that does so in a way that’s cost effective and efficient.

The five auto enrolment traps

1) Getting caught up in the capacity crunch

Arrange your pension provider as soon as possible - there are a limited number of pension providers trying to allocate places to employers for auto enrolment. As the government have set the minimum contributions low (total of 3% rising to 8% combined between employer and employee by 2018) a lot of pension providers feel that taking on companies purely for Auto Enrolment is simply not profitable enough for them.

As the number of staging businesses increases exponentially, it’s becoming more and more difficult to gain a place. Combine this with the number of people aged 55 and over trying to get in touch with pension providers regarding their new pension freedoms (220,000 in the first week after the new legislation) and how they can access their pension pots and you have a very large capacity of calls for information, with a disproportionate amount of man-power to deal with the demand.

Cost if you fall into this trap = 18 days searching for, setting up and implementing a payroll scheme – which could increase due to the capacity crunch

2) Getting caught up with assessment

Assessment is a difficult, long winded process that is almost impossible for you to do manually. It involves working out which of your employees are eligible for auto enrolment based on their age and how much they earn.

The assessment needs to be done for each payroll period, too. So, if you have workers that are on flexible hours contracts, or whose pay fluctuates above and below the threshold, then you need to know if they will be auto enrolled or not each month.

You also need to enrol them into a qualifying pension scheme, sending out their pension communications as well as payslips and P60s; a number of tasks that are very difficult to do manually.

Cost if you fall into this trap = 3.5 days per payroll period as well as a one off burden of up to 15 days

3) Not having enough knowledge of auto enrolment

If your staging date arrives and you have employees that are eligible to be enrolled, they will inevitably come to you for answers when they have questions.

The questions may range from:

  • Why is money being deducted from my pay?
  • How do I opt-out of the pension scheme?
  • How much do I have to pay out of my salary?
  • Who is the pension provider and why didn’t you go with X?
  • What is the reason behind auto enrolment? I don’t want to have a pension scheme.

It’s vital that you’re fully clued up on the legislation and what it means for you, your business and your employees.

Cost if you fall into this trap = 3.5 days on a monthly or weekly basis, depending on the frequency of your payroll

4) Forgetting your declaration of compliance

The Declaration of Compliance is your chance to tell The Pensions Regulator (TPR) that you’ve complied with the legislation in order to avoid a potentially heavy fine. The declaration itself is done online via their portal and you can fill it in as you go along, so that you’re always up to date.

It’ll also help you keep track of what you’re doing and what still needs to be done.

There is a lot of help on The Pension Regulator’s website for you when filling this in. They state that the majority of fines are given because people either don’t submit or incorrectly file their Declaration of Compliance. So make sure you fill it in correctly!

Find the Declaration of Compliance here.

Cost if you fall into this trap = £400 Fixed Penalty Notice, up to £10,000 per day and a burden of around half a day

5) Being unprepared for re-enrolment and continuous assessment

One thing you need to be completely aware of is that auto enrolment isn’t a ‘set and forget’ process. When you’ve auto enrolled your employees and communicated to them the changes and information about how to opt-out, you also need to stay on top of communications as and when employees require them, for example, when they become eligible for auto enrolment (if they weren’t already).

That’s not all. Three years after your staging date, the process starts again and your employees need to be re-assessed and re-enrolled.

The key element of this is the Declaration of Compliance. It needs to be submitted after the first staging date and re-submitted upon re-enrolment. The Pensions Regulator found that the majority of £400 penalty notices were issued because of a lack of declarations being submitted.

It’s your legal obligation to maintain these responsibilities from your staging date onwards and streamlining your auto enrolment process is an efficient way of doing this.

Cost if you fall into this trap = £400 Fixed Penalty Notice and up to £10,000 per day. Up to six days for dealing with re-enrolment and up to 30 days putting adequate business processes in place.


Here’s a handy checklist you can print off to ensure you don’t fall into any auto enrolment traps:

  1. Prepare early with your pension provider and auto enrolment solution
  2. Streamline your processes for easy assessment
  3. Attend training courses and educate yourself on auto enrolment
  4. Complete your declaration of compliance correctly and on time
  5. Be prepared early for re-enrolment and continuous assessment

These are the main things you need to avoid when it comes to auto enrolment. The legislation is already complex and difficult, so don’t add unnecessary worries and costs.

At KashFlow, we have a multitude of training seminars and webinars that you can attend to ensure that you have a top class level of knowledge at your disposal.
For further information on KashFlow Auto Enrolment Training, click here. You can also register for our free webinar on 29 January here.

Try KashFlow FREE & get auto enrolment-ready


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