Which Types Of Employee Does The Employer Have To Pay Contributions For?
There are three different types of employee for the purposes of auto enrolment contributions. Employers are obliged to contribute to the pensions of some types of employees, but not others.
Eligible jobholders are those employees who are eligible for auto enrolment. Please see here for the definition of an eligible jobholder. Employers must contribute to their pension.
Non-eligible jobholders are those employees who are not eligible for auto enrolment, but can opt in to auto enrolment. Please see here for the definition of a non-eligible jobholder. If the non-eligible jobholder opts in, then the employer must also contribute.
Entitled workers are the third category of employee, and employers do not have to contribute their pension. Please see here for the definition of entitled workers.
What Contributions Do You Have To Pay?
The table below shows the required minimum contributions to be paid into your workplace pension scheme at certain time periods. The increases to the minimum contributions have been planned to take effect in two phases: from 6th April 2018 and 6th April 2019. From these dates, employers must ensure that at least the minimum amounts are being paid into the pension scheme. Employers who sign up with Smart Pension will have their contributions increased automatically so that their pension scheme remains compliant with the changes.
| || Employee Contribution |
(Taken From Gross Salary)
|Government Tax Relief Top-Up* ||Employer Contribution ||Total Contribution |
|Until 05/04/18 ||1% of the employee's salary. ||0.2% ||An amount equal to 1% of the employee's salary ||An amount equal to 2% of the employee's salary |
|06/04/18 to 05/04/19 ||3% of the employee's salary ||0.6% ||An amount equal to 2% of the employee's salary ||An amount equal to 5% of the employee's salary |
|From 06/04/19 ||5% of the employee's salary ||1% ||An amount equal to 3% of the employee's salary ||An amount equal to 8% of the employee's salary |
* Click here to learn more about the government's tax relief on pension contributions.
N.B. The Smart Pension platform calculates contributions based on qualifying earnings and not basic pay.
What Is Contribution Phasing?
Workplace Pension Contribution Increases
As mentioned above and by law, the minimum contribution amounts for automatic enrolment pension schemes are required to increase at set times and will take effect in two phases. This is known as contribution phasing. The first pension contribution increase will be enforced from 6th April 2018 and will take the total minimum contribution from 2% up to 5% (of which the employer must contribute at least 2% whilst the employee makes up the difference). The second pension contribution increase will come into effect from 6th April 2019 and will take the total minimum contribution from 5% up to 8% (of which the employer must contribute at least 3% whilst the employee makes up the difference). Click here to see our auto enrolment contributions infographic which can be used to inform employees about the impending changes to the minimum required contribution levels.
All employers must ensure that they are making at least the minimum employer contribution into their employees' workplace pension schemes at all times.
Failure to adhere to the increase in minimum contributions will mean that a scheme is no longer a qualifying automatic enrolment pension scheme. Employers who have set up their workplace pension with Smart Pension will have the minimum employer contribution levels (and those of their employees) automatically increased to at least meet the minimum required percentage, by the required dates, to ensure that their scheme remains compliant with the new changes, and with the law, at all times.
It remains the employer's responsibility to check that the increase in contributions has been correctly applied to their workplace pension scheme.
Employers should inform their employees about these changes and of any contribution increases being applied to their employer pension contributions. As always, employers should not encourage employees to opt out as this is forbidden and in doing so, employers risk being fined by The Pensions Regulator.
When Do You Have To Pay The Contributions Into The Pension Scheme?
Employers are required by law to pay employee pension contributions into the company pension scheme on time.
If you have already set up a pension scheme, you will have agreed three important points with your pension provider. Firstly, the employer will have agreed with the pension provider the due dates. These are the dates on which the employer will pay the employee contributions into the pension scheme and the employer contributions into the pension scheme.
There are different rules depending on how the employer intends to pay the contributions into the workplace pension scheme. If the employer intends to pay by cheque then an employee's contribution must be paid into the company pension scheme by the 19th day of the month following the date on which the contributions were deducted from the scheme member's salary.
However if the employer intends to pay the contributions into the company pension scheme by any other method, then an employee's contribution must be paid into the company pension scheme by the 22nd day of the month following the date on which the contributions were deducted from the scheme member's salary.
Secondly, you will have agreed on the proportion of each employee's salary that will be contributed to the pension scheme.
Thirdly you will have agreed with the pension provider the amount that the employer will pay towards the pension of each scheme member.
The employer must pay the employer contributions into the pension scheme by the date that has been agreed with the pension provider. However The Pensions Regulator states that 'in practice it makes it easier if you pay them on the same date as your worker contributions.'
One further thing to be decided by the employer and the pension provider is how the contributions will be calculated. The employer can either be required to pay a percentage of the employee's salary into the pension scheme, or a fixed amount. This is important because paying a percentage of the employee's salary into the pension scheme will require the employer to decide what counts as pensionable pay. For example if the employee decides to contribute 5% of their salary, then the employer needs to clarify whether this includes bonus payments. This must be decided by the employer and the pension provider when the pension scheme is created.
As explained above, you will have established with the pension provider exactly how much you will need to pay into each employee's pension. You may be able to calculate employee contribution amounts (as a percentage of pensionable pay) using your payroll software. Please contact your payroll provider to confirm this.
It is recommended that you pay contributions through electronic transfer, as there is less chance of a delay or an error.
The pension provider will also ensure that the employer has paid the correct amount of money into the pension scheme of each employee. If the employer has not, then the pension provider may inform the employee or even The Pensions Regulator.
Record keeping is essential, and it will be the first port of call in the event of a dispute with either the pension provider or an employee. The Pensions Regulator suggests that you keep records for 6 years. The type of information that you should record includes:
- the amount of money paid to each employee's pension scheme from the employee's salary.
- the amount of money paid to each employee's pension scheme by the employer.
- the gross earnings of each employee.
Should this information change at any point, then you must ensure the pension provider is informed as soon as possible. For example, the employee may decide that she would like to increase her pension contribution by 0.5%. If you fail to tell the pension provider, then the pension provider will think you are contributing too much of the employee's salary to her pension, and may then report you to The Pensions Regulator. Communicating these changes will ensure that the pension provider is clear on exactly how much money they will receive and when.
"Incorrect or out of date information is the major cause of payment failure and disputes between the employer and scheme provider or trustees."
The Pensions Regulator – June 2013
(A quick guide to paying contributions)
Communicating Information With The Pension Provider
When you set up your pension scheme you should establish a process by which you communicate information to the pension provider. The type of information that you would need to communicate to the pension provider is called the 'payment information'. The 'payment information' is the information that pension provider needs to complete their obligations. These obligations include ensuring that you are contributing the correct amount to your employees' pensions and to report you to The Pensions Regulator if you are not. Ideally you should communicate a change in the 'payment information' to the pension provider as soon as you become aware of it, for example as soon as an employee opts out of the pension scheme.
If the pension provider requires further information from you then they can request it from you.
"You must provide this information to the scheme within a reasonable period". The regulator considers this to be seven working days of the request.
The Pensions Regulator – June 2013
(A quick guide to paying contributions)
If you fail to provide the required information within the reasonable period as defined by The Pensions Regulator and then your pension provider reports you to The Pensions Regulator, then The Pensions Regulator may fine you.
The late payment reporting period is 90 days from The Pensions Regulator's reporting due date which is defined in the Payment Schedule, here.
In conclusion, employers have a number of things to think about when paying and managing auto enrolment contributions. The first step is ascertaining exactly which employees will be automatically enrolled or can opt in to automatic enrolment, and how much you need to pay into their pension schemes. Then you need to communicate with your chosen pension provider how you will pay the contributions, when you will pay the contributions, and how much the contributions will be. Keeping appropriate records of your contributions and regularly communicating with your pension provider are also key.
If you have not yet set up your workplace pension, we can do it quickly and for free. Please click here to create your company workplace pension.