We have all heard about auto-enrolment or workplace pensions. However, in my experience of processing payroll, there are still mistakes being made by employers regarding eligibility or when they should be enrolling their employees.
When did automatic enrolment start?
Auto-enrolment has been introduced in stages since 2012. The largest employers started first, followed by medium-sized and then small employers. All employers, including new employers, should now be part of automatic enrolment.
When do I join a workplace pension?
Your employer must automatically enroll you into a pension scheme and make contributions to your pension if you are aged between 22 and state pension age. You must earn at least £10,000 a year (or £833.33 a month) and must also be classed as a worker.
I want to join but not all of the above applies…
Even if an employee doesn’t meet the criteria for auto-enrolment, they can voluntarily join the workplace pension scheme, as long as they are aged between 16 and 75. If you earn £6,240 a year (equal to about £520 a month or £120 a week) you will start contributing from the time you join. If you earn less than that, the regulations mean that you will not be entitled to contributions from your employer.
How will I know if I have been auto-enrolled?
When joining a company, the employer will write to you confirming the date you have been enrolled, or when you will be enrolled as some employers can delay enrolment by up to 3 months. The letter will detail who the pension scheme is with and how much you and the employer will contribute each month. The letter will also provide details on how you can opt-out.
How much is contributed to the total pension pot?
As a total, the law states a minimum of 8%. The norm would be 5% from the employee and 3% from the employer.
An employee’s salary, wages, overtime, bonuses, and statutory pay are used to calculate pensionable earnings.
Qualifying earnings for 2024/2025 have been set at £6,240 (£520.00 monthly) to £50,270 (£4189.17 monthly), which means income below £6,240 and above £50,270 are not used in the calculation.
Example employee calculations: (Based on a basic salary of £40,000)
| Basic Salary – Qualifying Earnings | £40,000 – £6,240 | £33,760 |
| Employee contribution % | 4% | £1,350.40 |
| Tax Relief | 1% | £337.60 |
| Total Employee Pension Pot | £1,688.00 |
Example employer calculations:
| Basic Salary – Qualifying Earnings | £40,000 – £6,240 | £33,760 |
| Employer contribution % | 3% | £1,012.80 |
| TOTAL ANNUAL EMPLOYEE AND EMPLOYER PENSION POT | £2,700.80 |
At Lambert Chapman LLP, our payroll team will calculate, submit and update pension contributions as part of our payroll processing. This ensures your calculations are always submitted accurately and on time.
If you have any questions, why not give our team a call on 01376 326266 or email us at payroll@lambert-chapman.co.uk.
Disclaimer
The views expressed in this article are the personal views of the Author and other professionals may express different views. They may not be the views of Lambert Chapman LLP. The material in the article cannot and should not be considered as exhaustive. Professional advice should be sought in connection with any of the issues contained in the article and the implementation of any actions.