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Auto enrolment Part 2: How much will it cost?

Posted on Wednesday, 8th October 2014 by
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Many employers are concerned about the cost of auto enrolment, and it will be a cost that needs to be budgeted for over the coming months and years.

As part of the auto enrolment process, employers will need to make contributions to the pension scheme for eligible jobholders. In principle, contributions will be due from the staging date although there is a short postponement facility for those who wish to access this – in practice the level of additional administration needed to use the 3 month postponement is unlikely to be worthwhile for most employers.

Level of Contributions

Employee Contribution

Employer Contributions

Tax

Relief

Total Contribution

0.8% of your qualifying earnings rising to 4% by 2018 1% of your qualifying earnings rising to 3% by 2018 0.2% of your qualifying earnings rising to 1% by 2018 1% initially rising to 8% by 2018

 

A total minimum contribution of 8% of qualifying earnings is required for eligible jobholders of which employers will need to contribute at least 3%. However, to help employers adjust, compulsory contributions will be phased in, starting at 1% (if the staging date is before 30 September 2017) before eventually rising to 3%.

The key requirement for you to note as an employer is the prospective cost of 3% of qualifying earnings from October 2018.

What are qualifying earnings?

Earnings cover cash elements of pay including overtime, bonuses and statutory payments such as Statutory Sick Pay.

Contributions will be payable on earnings between a lower and a higher threshold. The earnings between these amounts are called qualifying earnings. The lower threshold is £5,772 and the higher threshold is £41,865 for 2014/15. The thresholds will be reviewed by the Government each tax year.

The thresholds have to be considered for each pay period, so if you pay workers monthly, it is the monthly equivalent of the annual thresholds that need to be considered (i.e. lower and higher thresholds are £481 and £3,489 per month for 2014/15).

How we can help

The EHL Group can help you to manage the road to auto enrolment and help you to comply with the requirements when you are in auto enrolment.  This includes guiding you through the process, the letters to send to employees and meeting all key deadlines.

Please contact us for more information.

 

Talk to our legal team

The information provided in all of our blogs reflects only a narrative of some elements to consider on the topic. The blogs do not contain considered legal advice and should not be relied upon as advice. Please see our website terms and conditions for full details of our disclaimer. If you are interested in obtaining advice, please contact one of our lawyers who will be happy and able to advise you on your own particular circumstances.

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Andrew Robinson - Employment Law
Andrew Robinson - Employment Law
andrew.robinson@ehlsolicitors.co.uk 01509 212 108
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