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A CHANGE IS GONNA COME
Sam Cooke
Does Everyone Need to Be Enrolled?
No… Sole Traders / Partnerships with no employees
Business who use only “sub-contractors”
Some “personal companies” (Director only businesses)
Director Only Business Exemption Available if the only people working in the company are:- • You as a sole director;• A number of directors, none of whom have an employment
contract;• A number of directors, only one of whom has an employment
contract; Can also apply to “office holders”
What if Director Only Business has “Low Paid” Employees?
“Low Paid” is currently anyone earning £10,000 or less
Don’t need to enrol anyone
Duty to employees to inform them of the right to “opt in”
No scheme required until someone does
Exemption Application required if you receive a letter from The Pensions Regulator informing of staging date Email to [email protected] and complete pre populated message Must inform them if circumstances change as soon as possible
Already Offer A Scheme? Rules allow the use of existing scheme(s) provided they meet Qualifying Pension Scheme conditions
Still need to offer Auto Enrolment to employees not in existing scheme(s) who meet qualifying criteria
Costs of Implementing Will be dependent upon:- • Size of workforce;• Existing provisions;
Potential Costs The contributions themselves
Professional advice for establishing the schemes (plus ongoing)
Changes required to existing processes
Developing employee communication
Administration burden…..employees opting in and out
How to Reduce the Costs of Contributions Reduction in existing employee benefits (employment contact permitting)
Reduction in future pay rises
Reduction in workforce/use of sub-contractors None of these are realistic, nor lead to a happy workforce……
…instead
Salary Sacrifice
Definition:- A contractual agreement between employer and employee Employees pay is reduced before he or she receives it Corresponding sum paid to pension scheme by employer:-
• Employee saves income tax;• Both employee and employer save National Insurance;• On the amount sacrificed.
Example
Bob receives a gross salary of £40,000 p.a.
He receives net in hand, £30,287. His employer pays National Insurance of £4,408
Under auto enrolment, once the phasing period is over, Bob will receive net in hand £28,687
His employer will pay National Insurance and pension contributions totalling £5,608
Bob would have a pension fund of £2,000. He cannot access this until at least age 55
Costs to Bob, cash flow reduction of £1,600
Cost to employer, actual £1,200
Example
If Bob were to sacrifice, 5% of his salary he would receive net in hand £28,927
His employer will pay National Insurance and pension contributions totalling £5,272
Bob would have still have a pension fund of £2,000
Additional cash in hand to Bob by using salary sacrifice of £240 p.a.
Saving to employer of £336 p.a.
These savings are per employee
These illustrations would allow employees to decide whether salary sacrifice or even opting out is preferable to them
What if We Want to Use Salary Sacrifice? Cannot make agreement to salary sacrifice a condition of Auto Enrolment
Salary Sacrifice must be voluntary
Auto enrolment is mandatory for the employer
Ask each employee to agree to sacrifice BEFORE automatically enrolled (or eligible to opt in)
Consider postponement if required
We can assist in demonstrating the benefit to them
How Can We Help? Payroll Bureau to take away some of the administration burden
Assurance that will be processed correctly
Our software will be compatible with most pension schemes; many with automatic links
Advising of amounts due
Making salary sacrifice agreements with H M Revenue & Customs
Liaising with employees over any concerns they have (subject to limits of our engagement)
What We Cannot Do Responsibility for compliance remains with the employer. We cannot establish or operate the scheme itself……. ….. but we know a man who can!
Contact Us [email protected] [email protected]
Questions and Answers….
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Disclaimer The seminar material has been prepared for the benefit of attendees. It does not necessarily stand on its own and no responsibility for loss occasioned by any person acting or not acting as a result of this material can be accepted by Alnwick Accountants.
