Auto Enrolment – employer systems and processes

Smarter. Simpler. Better. @nowpensions

Smarter. Simpler. Better.

Auto Enrolment – employer systems and processes

Martin Olive | National Partnership Manager

February/March 2014


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


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


• 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


Agenda








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


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)


When to Make the Assessment

After the Assessment

date?

Before the Assessment

date?


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!



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


Applying auto enrolment in Payroll

When to make the assessment

Assessing the worker’s age


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


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


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


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


Tax week Non-leap year PRP Leap year

1 6 Apr to 12 Apr 6 Apr to 12 Apr



4 27 Apr to 3 May 4 May to 10 May

… … …

49 8 Mar to 14 Mar 7 Mar to 13 Mar



52 29 Mar to 4 Apr 28 Mar to 3 Apr



•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


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!”)


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.


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


Establishing the correct deduction period – by reference to when a worker is paid their regular salary

Period of deduction



**must include pension contribution deduction for 1/11 to 30/11

1 14October

301November

31

Pay date24/11**

Pay date24/10*

New starter14/10



Establishing the correct deduction period – using Tax Periods


6 14October

56 November5

Period of deduction


Pay date24/11*

New starter26/10


Pay date24/10



November1 14

October30131

Period of deduction


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



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).


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


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


The amount of Qualifying Earnings are:


• 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).


Tax week Non-leap year PRP Leap year




4 27 Apr to 3 May 4 May to 10 May

… … …




52 29 Mar to 4 Apr 28 Mar to 3 Apr



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


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?



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?



Agenda



The use of postponement






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”


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



When can an employer use 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


Why would an employer use 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


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


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!


Agenda








Auto enrolment compliance system

Payroll Middleware Pension Provider

£ £

£ ££ £

£• Communications

• Opt out/Opt in process• Records

• Reporting

• Assessment of workers


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


Agenda








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!”


Agenda


• Common Employer Mistakes• Emerging Adviser Charging Models

• The use of Postponement• Applying auto enrolment in Payroll• NOW: Pensions Overview


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?


Flip Chart Exercise!


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



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



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



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.

Auto Enrolment – employer systems and processes

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