auto-enrolment-employer-contributions

Auto-enrolment employer contributions

 03 Dec 2018

The minimum contributions that you must pay into your employee’s pension scheme are shown in the table below – they’re currently a total contribution of 5% with at least 2% employer contribution.

Minimum contributions are being introduced gradually over time. You will usually pay pension scheme contributions either as a fixed amount or based on a percentage of earnings.

The minimum contributions by an employer vary from scheme to scheme and depending on which scheme you agree to offer to your employees, then you must adhere to their rules and regulations. However, the government has imposed national minimum contributions as outlined below:


Employer’s minimum contribution

Total minimum contribution (including employee contribution)

Up to 5th April 2019

2%

5% (incl 3% employee contribution)

6th April 2019 onwards

3%

8% (incl 5% employee contribution


If you’re following the rules that mean contributions are based on the percentage of an employee’s earnings, then you need to continually confirm employee earnings with the pension provider to ensure you’re maintaining the minimum contribution outlined in their regulations. Furthermore, you will need to confirm with the scheme which aspects of their earnings are applicable such as basic pay excluding bonuses and overtime pay.

When must you make your contribution?

You need to pay your employer contributions to your scheme on time. This includes working out and deducting the monthly contribution based on the staff's salaries. Therefore, you must agree to the payment dates for all contributions to the scheme with your pension provider. However, the law does require all employee deductions from their salaries and payment of these deductions to be made to the scheme before the 22nd of the following month. There are special regulations for the first deductions on auto-enrolment under the Pensions Act 2008. If you fail to fulfil these obligations, then you risk being fined by the regulator. All employer contributions must be paid earlier than the 22nd of the following month and must be agreed by your trustees or administrators. However, it’s commonly performed on the same day as your employee’s contributions.

Keeping payment information and records

The most common disputes between an employer and the pension providers are from incorrect or out-of-date information. Therefore, all employers must keep scheme information and records regarding contributions by the employer and employee for six years. This will allow you to ensure that all the contributions are correctly paid and proof if a dispute arises. 

What records need to be kept?

Employers should keep the following information for at least six years:

  • Employee gross earning

  • Employee and employer pension contributions

All employers are recommended to keep information and membership details up to date and ensure that the pension provider is notified of any changes.

As part of your normal day-to-day administration arrangements, it’s recommended to ensure that the pension provider has all your employees correct information such as:

  • Changes to an employees earnings and contribution entitlement

  • Details of employees leaving or joining the pension scheme.

Employers should implement an internal process when commencing to offer a scheme. This might include providing updated earnings information at the same time as you pay contributions into the scheme.

If a pensions provider requires additional payment information, then this must be provided within seven working days, else you risk being fined by the regulator.

Pension fund limits

There are limits to the amount which can be held in a pensions fund and the amount which can be contributed annually without incurring certain tax charges. If you’re unsure what to pay and when then contact your pension provider for support.

Key Points

  • All pension deductions must be taken from the employee's salary prior to tax and submit on-time and accurately with your contribution

  • You could receive fines from the pensions regulator if you do not submit contributions on-time and accurately.

  • All records and payment information must be kept

  • Employer contributions are determined by the pension scheme but if you’re offering auto-enrolment then there are minimum contributions.

Auto-enrolment can become a laborious task for SME’s or start-ups and result in additional tasks needing to be completed which can consume more of your restricted time. Professional payroll providers offer solutions to these problems so you focus on growing and making your business successful