Reminder: pension contributions are set to increase in April
As part of Automatic Enrolment, both employers and employees have to make minimum contributions towards workplace pensions.
The final staging dates have now passed for Automatic Enrolment, meaning that eligible employees must legally now be registered into a workplace pension scheme.
As a quick refresher, you’ll legally have to provide and contribute towards a workplace pension scheme for anyone:
- Aged between 22 and the state pension age
- Who earns more than £833 per month / £192 per week
Through the Auto-Enrolment policy, about 9 million people are now saving into a workplace pension scheme.
Currently, the total contribution is 2% - made up from a 1% contribution from both the employer and the employee.
What is this changing to?
From 6th April 2018, these pension contributions will rise to 5%. 3% of this will come from the employee and 2% will come from the employer.
Who is eligible?
There a multiple parts to the Auto-Enrolment scheme. To be eligible, employees will have to:
- Earn at least £10,000 a year from a single job
- Have “Qualifying Earnings” of £5,876 for the 2017/18 tax year and £6,032 for the 2018/19 tax year
Further to this, any contributions will gain tax relief at the normal rate (currently 20% basic rate and 40% higher rate).
This means that the 2% contribution expected of employees on basic rate will actually be 2.4% from the employee and 0.6% from tax relief. As an employer, you’ll provide the other 2%.
Note that higher rate taxpayers will have to claim the extra 20% tax relief in their Self-Assessment tax return.
What to do as an employer
As an employer, you’re core duties remain the same – it’s just the amount you have to contribute that has changed.
You’ll need to deduct the 3% pension contribution from your employees’ wages or salaries and pay both these and your own 2% contributions into your chosen workplace pension scheme.
Remember that when you deduct a contribution from your employee’s salary, it must be paid into the staff pension scheme no later than the 22nd day of the next month (19th day if you’re paying by cheque). If you fail to do so, you could be fined by the pension’s regulator.
As an employer, you’ll have to keep record of staff gross earnings and both staff and employer pension scheme contributions due to be paid. If there’s any difference between the amount due and the amount actually paid, you’ll have to make record of this too.
These records must be kept up to date, and make sure any changes are communicated to your pension scheme provider or trustees.
What is pensionable?
As an employer, you can decide which aspects of staff pay you’ll use to calculate pension contribution. You could, for example, decide that basic pay in pensionable but bonuses and overtime are not. Just remember your legal obligations, such as automatic enrolment, can override these decisions and that you’ll need to let you pension scheme provider know what you decide.
Staying on top of Payroll
The increase in pension contribution rates is just one of changes due at Payroll Year End. To make sure IRIS Payroll users are successfully navigating the year end and staying compliant with UK law, we’ve developed the Payroll Year End Pack.
This pack has been designed to help ensure you have a smooth year end, and that you’re compliant with the latest payroll and HR legislation.
We’ve included an online video covering payroll year end, payroll legislation and HR tips.