11 May SME payroll and new pension laws
Every employer in the UK, no matter what size they are or what business sector they operate in, must comply with new pension legislation.
The government has created new laws to ensure that everyone saves for their retirement throughout their career – relieving the burden on state finances. This compels anyone who employs staff to set up a company pension scheme and automatically enrol employees as soon as they meet the criteria.
This Auto Enrolment system has been introduced in larger firms already, but by the end of 2017, all SMEs will have to comply.
The Pensions Regulator is contacting every employer in the UK with a staging date, and this provides a timetable to adhere to.
What staff are eligible for Auto Enrolment?
SMEs must automatically enrol their staff on to company pension schemes if they are aged over 22 but under the current pensionable age. The earning threshold is £10,000 annually.
However, if you employ temporary or seasonal staff, they become eligible for Auto Enrolment as soon as they earn over £192 in any one week (or £833 in a month). Keep in mind this calculation must include payments for overtime, commission or even bonuses.
If a casual staff member is unlikely to earn over that threshold in the future – or will reach the end of their contract soon – you can postpone Auto Enrolment for up to three months, as long as you write to the employee to let them know why you have done that.
How does it affect SME payrolls?
Within the terms of the new legislation, your payroll needs to be set up to add 1% of an eligible employee’s earnings to their pension every month. Another 1% contribution is made by your company. This amount is set to change over the next two years, potentially increasing to 3%.
Employees who earn between £5,824 and £10,000 must be offered a chance to opt into your company pension scheme. If they do, then you need the same payroll automation and to make the same contribution as an employer.
Anyone earning less than £5,824 can still choose to contribute to your company pension, but employers don’t have to add to the funds.
Help to understand new laws
It is vital that SMEs get insightful accountancy advice to look at the implications for payroll systems. For help in preparing for Auto Enrolment within your payroll system, contact SQK Accountancy today on 0161 818 2419.