In the fourth part of our series on contract management pitfalls, we look at the risks arising out of varying the terms of construction contracts.
What is auto-enrolment?
The Government introduced legislation in 2012 requiring all UK employers to automatically enrol eligible “jobholders” into an “automatic enrolment scheme” and, in time, to pay employer pension contributions of up to 3%. To help reduce the impact on smaller employers, the Government decided to phase in the introduction of this requirement. There are different “staging dates” for different employers over a five and a half year period based on size of payroll, with smaller employers having their staging date towards 2017.
Who qualifies as a “jobholder”?
A jobholder is broadly defined and includes permanent workers, temporary workers and agency staff. Workers who are eligible for auto-enrolment must, however, have earnings of over £9,440 per year and be between the age of 22 and their state pension age.
What is an “automatic enrolment scheme”?
Broadly speaking, it is an occupational pension scheme, a personal pension scheme or the National Employment Savings Trust (“NEST”). With the exception of NEST, the scheme chosen by an employer must meet set quality requirements to be considered a qualifying pension scheme. The quality requirements will vary depending on the type of scheme and these are set out in the Pensions Act 2008. Employers should check with the Pensions Regulator to ensure that their proposed scheme will qualify.
How can we find out our staging date?
Employers can find out their staging date by using the Pensions Regulator’s staging calculator which is available on the Pensions Regulator website - click here to view. Employers will need to enter their PAYE reference number and must have been in business before 1 April 2012. Employers’ staging dates should also be shown on any correspondence from the Pensions Regulator about employers’ duties under auto-enrolment.
It is possible for employers to bring their staging date forward but, unless they employ less than 50 staff, it will not normally be possible to push it back by more than 3 months.
Employees are able to opt out of auto-enrolment if they choose. Employers had anticipated high opt out rates and indeed had budgeted for this. However, opt out rates have been unexpectedly low. The DWP carried out research with around 50 large employers during the first 6 months of auto-enrolment. The findings (published in 2013 by the DWP in a report entitled: “Automatic enrolment opt out rates: findings from research with large employers”) showed that the average opt out rate of those that were auto-enrolled was 9%. Commentators have suggested that the same will not be true of smaller employers and that the opt out rate is likely to increase as the roll out continues. This remains to be seen but a cautious approach to budgeting for opt outs would be advisable.
Employees with fluctuating earnings
As employers are required to make an assessment of whether an employee is eligible for auto-enrolment in each “pay-reference period” (e.g. if the employee is paid monthly, they will need to be assessed monthly) this may cause difficulties for employers who have employee’s whose earning fluctuate. Employers in the domiciliary care sector are likely to have a significant number of employees whose earnings fluctuate, due to the nature of the work. For example, employees on zero-hour contracts may regularly cross either side of the threshold for annual earnings. In these situations, employers will need to ensure that their assessment is accurate and regular. Once an employee is auto-enrolled, they remain auto-enrolled. That is, if an employee in one month meets the eligibility requirements and is auto-enrolled and the following month the employee’s earnings drop below the threshold, they remain entitled to be a member of the scheme.
TUPE and auto-enrolment
Where an employee is TUPE transferred from one employer to another employer that has passed its staging date, this will trigger a requirement for the new employer to make an assessment at the point of transfer.
Employers are required to match contributions (up to 6%) or offer a direct benefit scheme to employees who transfer to them under TUPE, where the employee was (or was eligible to be) enrolled in an occupational scheme. This means that where an employee was automatically enrolled into an occupational scheme with their previous employer, they could turn out to be entitled to more on transfer than they would have been entitled to with their previous employer.
The DWP has issued draft regulations to try and address this issue but these are yet to come into force.
For more information
Contact Doug Mullen on email@example.com or 0121 212 7432.
Whilst every effort has been made to ensure the accuracy of this guidance, it is a summary, rather than a definitive statement of the law; advice should be taken before action is implemented or refrained from in specific cases. No responsibility can be accepted for action taken or refrained from solely by reference to the contents of this article.
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