Workplace Pension Auto Enrolment Made Simple – What Small Businesses Need to Know

Tuesday, July 12th, 2016

Auto-enrolling employees into a pension scheme is something that began back in 2012 with large businesses, now from 2016 smaller businesses are having to follow suit whether employing 1 person or 500. Read our short blog and learn what your obligations are as an employer…

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In the UK, 1.8 million small business owners will now have to offer an auto-enrolment pension scheme for their eligible employees.

Eligible employees are…
1) aged between 22 and the State Pension age
2) earn at least £10,000 a year.

Auto-enrolement means that as a business owner employing staff you will be obligated to put in place a pension scheme if you don’t already have one. You must pay into this scheme each and every pay period. Be aware that non-eligible workers can ask to be included in this pensions scheme, you must then pay the minimum contribution for these workers too.

Non-eligible workers are…
1) aged between 16 and 22 or between state pension age and 74
2) earns more than £10,000 in a year


1) aged between 16 and 74
2) earns at least £5,824 but less than £10,000.

You the employer must pay a minimum contribution into the scheme which will start at 1% of a worker’s qualifying earnings and increase to 3% over the next few years.

Qualifying earnings does not mean all of an employee’s salary, but applies to their earnings between £5,824 and £43,000 ( for 2016/17). Overtime, bonuses, commission, statutory sick pay, other statutory pay (such as maternity) are all included when calculating qualifying earnings.

As an employer it is your responsibility to set up and make the correct contributions to a suitable pension scheme, to evaluate the eligibility of each member of your staff at each pay period and maintain accurate records.

So what happens if you don’t?

Well, firstly you will get a notice informing you of your offence and you will be given a time scale to pay the necessary contributions. If you do not pay the outstanding contributions you will receive a fixed penalty of £400. If you still do not pay the outstanding contributions a daily penalty will be applied, the amount will depend on the number of employees you have, for example if you employ 5-49 employees you will receive a £500 daily penalty charge. If things escalate further you could receive a Prohibited Recruitment Conduct Penalty Notice at a maximum of £5,000, and where contributions have not been paid a Civil Penalty Notice can be issued for up to £5,000 per individual and £50,000 per organisation – ouch! So, if you don’t currently have a pension scheme in place – get one! The government runs a scheme called NEST (National Employment Savings Trust) which was set up specifically to provide employers with a simple way to set up auto-enrolment, find out more at

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