auto enrolment – employer systems and processes
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Martin Olive presents Auto Enrolment – Employer systems and processes at the Three-sixty seminars.TRANSCRIPT
Smarter. Simpler. Better. @nowpensions
Smarter. Simpler. Better.
Auto Enrolment – employer systems and processes
Martin Olive | National Partnership Manager
February/March 2014
Smarter. Simpler. Better. @nowpensions
Learning Objectives
1. Understand how pay reference periods must be used to assess qualifying auto enrolment earnings
2. Become able to identify how effective use of Postponement can ease the employer administrative and financial burden
3. Understand how Payroll systems and middleware are developing in order to best advise clients of their options when planning for their staging date
4. Understand whether middleware might become a part of your AE advice model, for both your benefit and that of the client
Smarter. Simpler. Better. @nowpensions
AgendaNOW: Pensions Overview
• Applying auto enrolment in Payroll
• The use of Postponement
• Middleware and Payroll Systems
• Common Employer Mistakes
• Emerging Adviser Charging Models
• NOW: Pensions Overview
Smarter. Simpler. Better. @nowpensions
• NOW: Pensions is a UK multi-employer Trust
45 years
+7.95% p.a. (average) for the last 5 years*
c£74bn FUM
* Back tested data for the UK based on ATP’s investment strategy and NOW: Pensions’ implementation strategy to 30 Sept 2012
NOW: Pensions Overview
• Supported by ATP, Denmark’s leading pension provider
• Low cost operating model
• ATP investment team
• Equiniti Paymaster administrator to 2.9m UK workers
• 160,000 employers
• 4.7m members
Smarter. Simpler. Better. @nowpensions
Agenda
• Applying auto enrolment in Payroll
• NOW: Pensions Overview
• The use of Postponement
• Middleware and Payroll Systems
• Common Employer Mistakes
• Emerging Adviser Charging Models
Smarter. Simpler. Better. @nowpensions
Applying auto enrolment in Payroll
When to make the assessment
Assessing the worker’s age
Jobholder works or ordinarily works in the UK?
Are qualifying earnings payable?• Identify/define relevant pay reference period• Identify what is payable in relevant pay
reference period• Assess earnings against Lower Level qualifying
earnings and auto enrolment earnings trigger
Smarter. Simpler. Better. @nowpensions
When to Make the Assessment
• Staging date• First day of employment• Worker’s 22nd birthday• Worker’s 16th birthday• Date opt-in or joining notice received from
worker• The deferral date• Day after DB scheme transitional date• First day of each pay reference period
(non eligible/entitled)
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When to Make the Assessment
After the Assessment
date?
Before the Assessment
date?
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Jobholder Works or Ordinarily Works in the UK?
Will this worker need to be assessed?
• Student: French national
• In UK at university for 12 months
• Will return to France after 12 months
• Works at The Student Pub and Restaurant in Bristol
• Hourly paid - varying hours each week
YES!
Smarter. Simpler. Better. @nowpensions
Jobholder works or ordinarily works in the UK?
Primary consideration is where are they Based?
• Where does the worker begin/end their work?
• Where is their private residence (or where intended to be?)
• Where is the worker’s headquarters?
• Paying NI in UK?
• What currency they are paid in
Smarter. Simpler. Better. @nowpensions
Applying auto enrolment in Payroll
When to make the assessment
Assessing the worker’s age
Jobholder works or ordinarily works in the UK?
Are qualifying earnings payable?• Identify/define relevant pay reference period• Identify what is payable in relevant pay
reference period• Assess earnings against Lower Level qualifying
earnings and auto enrolment earnings trigger
Smarter. Simpler. Better. @nowpensions
Are Qualifying Earnings payable? Choose definition of Pay Reference Period
Step 1. Choose Definition of Pay Reference Period
• Tax periods– Post 1st November 2013
Or
• “The period by reference to which a worker is paid their regular wage or salary”
– Pre or post 1st November 2013
Smarter. Simpler. Better. @nowpensions
Using Tax Periods
Are Qualifying Earnings payable? Choose definition of Pay Reference Period
• “a period equal in length to the usual interval between payments of the person’s regular wage or salary”
Or
• “a period of one week”
whichever is the longer
Smarter. Simpler. Better. @nowpensions
Choose Definition of Pay Reference PeriodTax Periods (monthly)
Tax month Pay reference period
Tax month Pay reference period
1 6 Apr to 5 May 7 6 Oct to 5 Nov
2 6 May to 5 Jun 8 6 Nov to 5 Dec
3 6 Jun to 5 Jul 9 6 Dec to 5 Jan
4 6 Jul to 5 Aug 10 6 Jan to 5 Feb
5 6 Aug to 5 Sep 11 6 Feb to 5 Mar
6 6 Sep to 5 Oct 12 5 Mar to 5 Apr
Smarter. Simpler. Better. @nowpensions
Tax week Non-leap year PRP Leap year
1 6 Apr to 12 Apr 6 Apr to 12 Apr
2 13 Apr to 19 Apr 13 Apr to 19 Apr
3 20 Apr to 26 Apr 20 Apr to 26 Apr
4 27 Apr to 3 May 4 May to 10 May
… … …
49 8 Mar to 14 Mar 7 Mar to 13 Mar
50 15 Mar to 21 Mar 14 Mar to 20 Mar
51 22 Mar to 28 Mar 21 Mar to 27 Mar
52 29 Mar to 4 Apr 28 Mar to 3 Apr
Choose Definition of Pay Reference PeriodTax Periods (monthly)
Smarter. Simpler. Better. @nowpensions
•Fixed basic salary; paid monthly on last working day of month•Pay reference period is one month in length starting
on the first day of each tax month
Establishing the Length of the Pay Reference Period
•Paid weekly on Friday for hours worked Monday to Sunday•Pay reference period is one week in length starting
on the first day of each tax week
Using Tax Periods – examples
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Using pay reference period by reference to which a worker is paid their regular wage or salary
The period is:
• One week where paid their regular wage or salary by reference to a period of a week
Or
• Where by reference to a period longer than a week, whichever period the worker is paid by reference to.
Establishing the Length of the Pay Reference Period
(So, a monthly period will be one month – “Simples!”)
Smarter. Simpler. Better. @nowpensions
Using pay reference period by reference to which a worker is paid their regular wage or salary – Examples
Establishing the Length of thePay Reference Period
• Fixed basic salary, monthly, paid on 23rd of each month• Payment relates to work done between 24th and 23rd of
following month• Pay reference period runs from 24th of previous to 23rd of
each following month.
• Fixed basic salary, monthly, paid on last day of the month• Payment relates to work done 1st to end of month• Pay reference period is 1st day of the month to last day of
month.
Smarter. Simpler. Better. @nowpensions
Establishing the correct deduction period - using Tax Periods
Period of deduction
Relevant pay reference period
*must include pension contribution deduction for 14/10 to 5/11
**must include pension contribution deduction for 6/11 to 5/12
6 14October
56 November5
Pay date24/11**
Pay date24/10*
New starter14/10
automaticenrolment date
Smarter. Simpler. Better. @nowpensions
Establishing the correct deduction period – by reference to when a worker is paid their regular salary
Period of deduction
Relevant pay reference period
*must include pension contribution deduction for 14/10 to 31/10
**must include pension contribution deduction for 1/11 to 30/11
1 14October
301November
31
Pay date24/11**
Pay date24/10*
New starter14/10
automaticenrolment date
Smarter. Simpler. Better. @nowpensions
Establishing the correct deduction period – using Tax Periods
*must include pension contribution deduction for 26/10 to 5/12
6 14October
56 November5
Period of deduction
Relevant pay reference period
Pay date24/11*
New starter26/10
automaticenrolment date
Pay date24/10
Smarter. Simpler. Better. @nowpensions
*must include pension contribution deduction for 26/10 to 30/11
November1 14
October30131
Period of deduction
Relevant pay reference period
Establishing the correct deduction period – by reference to when a worker is paid their regular salary
Pay date24/1*
Pay date24/10
New starter26/10
automaticenrolment date
Smarter. Simpler. Better. @nowpensions
Are there Qualifying Earnings in the relevant pay period?• A – what is payable in the relevant pay period?
• B – is this above the applicable thresholds?
Step 2 – Are there Qualifying Earnings in the relevant pay period?
“Qualifying Earnings” are earnings between £5,668 and £41,450 for the 2013/14 tax year. (£5772 and £41,865 for 2014/15 tax year).
Smarter. Simpler. Better. @nowpensions
Are Qualifying Earnings payable?
Pay reference period Lower level of qualifying earnings
The earnings trigger for automatic enrolment
One Week £109.00 £182.00
Fortnight £218.00 £364.00
Four weeks £436.00 £727.00
One month £473.00 £787.00
One quarter £1,417.00 £2,360.00
Bi-annual £2,834.00 £4,720.00
Annual £5,668.00 (£5772 for 2014/15) £9,440.00 (£10000)
Note: These figures are for the 2013-2014 tax year. DWP has recently announced the figures for the 2014/15 tax year
Smarter. Simpler. Better. @nowpensions
Qualifying Earnings consist of:
Are Qualifying Earnings Payable?
• Salary• Wages• Commission• Bonuses• Overtime• Statutory sick pay• Statutory maternity pay• Ordinary or additional statutory paternity pay• Statutory adoption pay
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The amount of Qualifying Earnings are:
Are Qualifying Earnings Payable?
• The total amount payable within the pay period is considered.
• All earnings “actually paid in, also what is due to be paid in, or was due to be paid in the pay reference period.”
• £5,668 to £41, 450 2013/14 tax year (£5772 and £41,865 for 2014/15 tax year).
Smarter. Simpler. Better. @nowpensions
Tax week Non-leap year PRP Leap year
1 6 Apr to 12 Apr 6 Apr to 12 Apr
2 13 Apr to 19 Apr 13 Apr to 19 Apr
3 20 Apr to 26 Apr 20 Apr to 26 Apr
4 27 Apr to 3 May 4 May to 10 May
… … …
49 8 Mar to 14 Mar 7 Mar to 13 Mar
50 15 Mar to 21 Mar 14 Mar to 20 Mar
51 22 Mar to 28 Mar 21 Mar to 27 Mar
52 29 Mar to 4 Apr 28 Mar to 3 Apr
Choose Definition of Pay Reference PeriodTax Periods (monthly)
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Relevant pay reference periods across the tax year change
Pay date10/4
4/4 1/5 Last PRP of 2015–16
6/4 3/5 First PRP of 2016–17
Pay date4/5 or 5/4
Smarter. Simpler. Better. @nowpensions
Consider:
• Pay reference period 1st to 31st May. Payroll closes 25th of each month
• 15th May – Ruth turns 22 years old• Salary of £600• 28th April Ruth worked 4 hours overtime (£50)• 26th May Ruth works 4 hours overtime (£50)• Up to 15th May sales commission earned: £100• Estimated sales commission for full month: £150
• What is the total qualifying earnings for Ruth in the relevant pay reference period?
Are Qualifying Earnings Payable?
Smarter. Simpler. Better. @nowpensions
Consider:
• Jasper turns 22 on 24th August• Paid monthly on 15th month in respect of work done between
the first and last days of the calendar month• Paid in arrears; payroll closes 3rd of each month• Pay reference periods aligned to tax months• Basic salary £750• 30th July bonus awarded of £100• 5th August worked overtime worth £50
• What is the total qualifying earnings for Jasper in the relevant pay reference period?
Are Qualifying Earnings Payable?
Smarter. Simpler. Better. @nowpensions
Agenda
• Applying auto enrolment in Payroll
• NOW: Pensions Overview
The use of postponement
• Middleware and Payroll Systems
• Common Employer Mistakes
• Emerging Adviser Charging Models
• The use of Postponement
Smarter. Simpler. Better. @nowpensions
The Use of Postponement
“When making this decision [whether or not to postpone], an employer should consider the outcome they wish to achieve through using postponement.
Postponement gives an employer the flexibility to align
the administration of the employer duties to their existing
business and payroll processes”
Source: The Pensions Regulator Detailed Guidance 3a
“An employer can choose to use
postponement in respect of one worker, some workers or all of
their workforce”
Smarter. Simpler. Better. @nowpensions
What is postponement?
• Also known as deferment period• Employer can “defer” automatic enrolment for any period up to 3 months from staging date
• It is NOT postponement of the staging date• Scheme must be in place by staging date
The Use of Postponement
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When can an employer use postponement?
The Use of Postponement
• From the date an existing worker becomes eligible for the first time
• On staging date for employees employed on that date
• New joiners – from first date of employment
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Why would an employer use postponement?
The Use of Postponement
• To save money (on pension contributions)
• To reduce on-going administration (possibly!)• Transient workers• Zero hours contracts • Workers moving regularly from eligible to non eligible
to entitled etc.
• To automatically enrol fewer workers
• To tie in with new employee probationary periods
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Example 4: Postponement*
*Example: John (age 25)Assumed UK ee/er
Basic Salary £750 pcmLegislation minimum criteria
AE Trigger
£786.66
Jan Feb Mar Apr May JunBasic Salary
Lower Earnings Threshold
£750.00
£472.33
£900.00Earnings spikeRe-assess
Apply 3 months postpone
ment
AE not required
Smarter. Simpler. Better. @nowpensions
Example 4: Postponement*
AE Trigger
£786.66
Jun Jul Aug Sep Oct NovBasic Salary
Lower Earnings Threshold
£750.00
£472.33*Example: John (age 25)
Assumed UK ee/erBasic Salary £750 pcm
Legislation minimum criteria
£980.00Earnings spike
£803.00Earnings spike
Apply 3 months
postponement
Must enrol now!
Smarter. Simpler. Better. @nowpensions
Agenda
• The use of Postponement
• Applying auto enrolment in Payroll
• Common Employer Mistakes
• Emerging Adviser Charging Models
• NOW: Pensions Overview
• Middleware and Payroll Systems
Smarter. Simpler. Better. @nowpensions
Auto enrolment compliance system
Payroll Middleware Pension Provider
£ £
£ ££ £
£• Communications
• Opt out/Opt in process• Records
• Reporting
• Assessment of workers
Smarter. Simpler. Better. @nowpensions
Smarter. Simpler. Better. @nowpensions
Smarter. Simpler. Better. @nowpensions
Smarter. Simpler. Better. @nowpensions
Largest payroll software providers
0
50
100
150
200
250
300
350
400 Client base – 000s of employers
Sage
50
Iris
Payr
ite
Nor
thga
te
Star
Pega
sus
AD
P
Ceri
dian
Comments• Sage alone has >500k
employer connections, with Sage 50 having >350k
• Iris have >300k
• Star have >70K
• Sage/ Iris/ Star/ Payrite supportc.80% of bureaus
Smarter. Simpler. Better. @nowpensions
Agenda
• Middleware and Payroll Systems
• The use of Postponement
• Applying auto enrolment in Payroll
• Emerging Adviser Charging Models
• NOW: Pensions Overview
• Common Employer Mistakes
Smarter. Simpler. Better. @nowpensions
AE implementation – common employer misconceptions
• Files to/from payroll• “Vera is our payroll provider rep – just speak with her!”
• Postponement• “it will save me three months contributions!”
• Breaches• “You (pension provider) sent the communications late – you
need to report that to TPR!”
• Resources• “How difficult can this be? Joe in payroll can sort it!”
Smarter. Simpler. Better. @nowpensions
Smarter. Simpler. Better. @nowpensions
Agenda
• Middleware and Payroll Systems
• Common Employer Mistakes• Emerging Adviser Charging Models
• The use of Postponement• Applying auto enrolment in Payroll• NOW: Pensions Overview
Smarter. Simpler. Better. @nowpensions
Employer Responsibilities – decisions & actions
• Pre staging date• At staging date• On-going forever post staging date
Auto enrolment Advice Models – do I get involved in payroll?
Smarter. Simpler. Better. @nowpensions
Flip Chart Exercise!
Smarter. Simpler. Better. @nowpensions
Employer Responsibilities – advice areas
• Project plan/management• Desired business outcomes from auto enrolment? • Recruitment practice• Optimum staging date• Postpone?• Review existing schemes• Assess overall auto enrolment costs• Salary exchange?• Pre staging employee communications
Auto enrolment Advice Models – do I get involved in payroll?
Smarter. Simpler. Better. @nowpensions
Employer Responsibilities – advice areas (cont)
• Definitions of pensionable earnings • Assess payroll capability• Tiering of contributions• Email address campaign• Select pension scheme• Liaise employer/payroll/pensions provider
Auto enrolment Advice Models – do I get involved in payroll?
Smarter. Simpler. Better. @nowpensions
Employer Responsibilities – systems driven
• Assessment of workers pre staging, at staging, on-going• Run opt out/in process and communications• 3 year re-enrolment cycle• Issuance of statutory postponement notices• Issuance of statutory joining letters• Record keeping for TPR requirements• Reporting• Submission of pension contribution information• Administer refunds
Auto enrolment Advice Models – do I get involved in payroll?
Smarter. Simpler. Better. @nowpensions
Emerging auto enrolment adviser charging models
1. Consult, report, handover to pension provider
2. Implement and on-going through “middleware”• Non regulated business?• On-going income stream.
3. Consult, implement and on-going through payroll software
• Regulated and non regulated?• Initial and on-going income stream
• First model is by far the most common and least risky.
• The others offer by far the highest potential overall income.