A quick guide to automatic enrolment and the employer duties from an IFA perspective - PowerPoint Presentation

Slide1

A quick guide to automatic enrolment and the employer duties from an IFA perspective

Stewart Tomlinson - McParland & Partners

Erica Dietsch – Hawsons Wealth Management LtdSlide2

What we are looking at today…

Employer dutiesWorker statusPay Reference Periods

PostponementDirectorsOccupational vs GPP (Master Trusts)Choosing Pension Schemes

ProcessDeclaration of ComplianceSlide3

The Pensions Regulator has listed 11 main steps

that it considers all employers need to complete to fulfil their legislationThese steps are the basic processes; some are easy to complete, others require much more time and knowledge and this is what you are needed for

It’s much more than just providing a pension scheme…

Employer Duties…Slide4

From October 2012 every UK employer must:

Register with The Pensions Regulator and provide details of workforce and pension schemeAutomatically enrole certain workersArrange membership of a pension scheme for other workers

So what are their duties?The employer duties and automatic enrolmentSlide5

The employer duties and automatic enrolment

The Pensions Regulator has listed

11 main steps that it considers all employers need to complete to fulfil their legislationSlide6

1. Know when they need to be ready – what is their staging date?

2. Work with the legislation – they must provide a point of contact for The Regulator to write to3. Develop their initial plans with them

First steps…Slide7

4. Find out who to enrol – who is a worker?

5. Choose payroll software and check employee records6. Choose a pension scheme that will meet the legislative “qualifying” requirements

Before the staging date…Slide8

7. Automatically enrol staff

8. Tell the staff about this – letters and/or presentations9. Complete the declaration of compliance to The Pensions Regulator

At the staging date…Slide9

NO10. The employer must maintain records for The Regulator as they can ask to access them at any time

11. The employer must continue to fulfil ongoing responsibilities

Is it all over?…Slide10

So what makes a worker?Slide11

According to The Pensions Regulator, a worker is defined as any individual who:

Works under a contract of employment (an employee) orHas a contract to perform work or services personally and is not undertaking the work as part of their own business

Anyone who has entered into a contract of this type with an individual is an employer and is required to comply with the new duties

So what makes a worker?Slide12

Problem is that….The Pensions Regulator’s definition of Self-Employment differs from that of HMRC

So what is a Personal Services Worker?

So…who is a worker?Slide13

People could be subject to the automatic enrolment legislation if they are:

Full or part-time

P

ermanent, temporary or casual workersOn ‘zero hours’ contractsA

contractor (even if considered self employed for tax purposes)

A

gency staff

S

taff seconded overseas, and/or

H

ome workers

Which workers may be affected?Slide14

A person is likely to be subject to the automatic enrolment legislation if they:

work or

ordinarily work in the UKand

either work under a contract of employment (an employee)or

are a

personal services worker

, meaning they

have a contract to perform work or services

personally*

and are

not

undertaking the work as part of their own business.

* ie they cannot send a substitute or sub-contract the work, unless they are unable to perform the work themselves (eg due to sickness)

Who is subject to this legislation?Slide15

The employer needs to judge whether or not an individual (who is not a director)

with a contract to perform work or services personally

is undertaking the work as part of their own business.Are they a personal services worker?Slide16

Does the employer

…

Have control over an individual’s method of work (eg hours worked)?P

rovide any employee benefits?Bear all the significant financial risks in carrying out the work (eg the worker is not financially responsible for their faulty work)?P

rovide what is required for the individual to carry out the work (eg tools)?

 If most or all of the above are true,

then it would be reasonable to consider that they are

not

undertaking the work as part of their own business…and

they are

a

personal services worker.

The list above is not exhaustive and an employer must take into account all relevant considerations and make a

reasonable judgement

.

Are they a personal services worker?Slide17

Example 1: Is Eddie a worker?

Eddie is a self employed graphic designer. He works regularly for a company, Acme Workshops Ltd.

His role is unique. He designs (and, if necessary, prints on his own equipment) all the flyers and magazine ads. He also designs and updates their website and forum. Eddie is very important to Acme Workshops’ marketing strategy.

It is a nightmare when Eddie is too busy working for other customers, because his contract with Acme does not permit him to send a replacement. Eddie works unsupervised and, generally, he works from home, but sometimes he works in the offices of Acme Workshops.

Eddie invoices Acme Workshops at the end of each campaign design and guarantees the quality of his material.

Q. Should Acme Workshops consider Eddie to be their worker?Slide18

Example 1: Is Eddie a worker?

Eddie is a self employed graphic designer. He works regularly for a company, Acme Workshops Ltd.

His role is unique. He designs (and, if necessary, prints on his own equipment) all the flyers and magazine ads. He also designs and updates their website and forum. Eddie is very important to Acme Workshops’ marketing strategy.

It is a nightmare when Eddie is too busy working for other customers, because his contract with Acme does not permit him to send a replacement. Eddie works unsupervised and, generally, he works from home, but sometimes he works in the offices of Acme Workshops.

Eddie invoices Acme Workshops at the end of each campaign design and guarantees the quality of his material.



Eddie cannot reasonably be considered a worker.Slide19

Example 1: Is Eddie a worker?



Eddie

cannot reasonably be considered a worker, because:He is not an employee;

He sometimes uses his own equipment;

He is not permitted to send a replacement;

He works unsupervised, and:

He guarantees the quality of his work.Slide20

Georgina is a self employed IT professional who works full time for Acme Workshops Ltd.

Georgina supports Acme Workshops’ in house payroll system and is very important to Acme Workshops and no one else has the expertise to do her work when she’s on holiday. Georgina works in Acme Workshops’ payroll team, alongside Acme Workshops’ own employees in their offices, but sometimes she is allowed to work from home.

Georgina invoices Acme Workshops at the end of each month based on the number of days she has worked.

Example 2: Is Georgina a worker?

Q. Should Acme Workshops consider Georgina to be their worker?Slide21

Georgina is a self employed IT professional who works full time for Acme Workshops Ltd.

Georgina supports Acme Workshops’ in house payroll system and is very important to Acme Workshops and no one else has the expertise to do her work when she’s on holiday. Georgina works in Acme Workshops’ payroll team, alongside Acme Workshops’ own employees in their offices, but sometimes she is allowed to work from home.

Georgina invoices Acme Workshops at the end of each month based on the number of days she has worked.

Georgina can reasonably be considered a worker.

Example 2: Is Georgina a worker?

Slide22

Georgina can

reasonably be considered a worker, because:

She is supervised by Acme (needs permission to work at home);She works in their offices (uses their office equipment and supplies), and;

She is paid a daily rate (the completed work is not guaranteed)

Example 2: Is Georgina a worker?

Slide23

Non-eligible

jobholders

Entitled

workers

Workers are split into categories

Eligible

jobholdersSlide24

The different categories of worker are determined by their age and how much they earn:

These figures are for the 2016/17 tax year.

Earnings above

£10,000

Earnings over

£5,824 up to £10,000

Earnings of

£5,824

or less

Age 16-21 (inclusive

)

Age 22-State pension age (inclusive)

State pension age-75 (inclusive)

Eligible jobholders

Non-eligible jobholders

Entitled workers

Workers are split into categoriesSlide25

The term ‘Pay Reference Period’ is used in two different ways within the employer duties

There are also two definitions of a pay reference period in legislation and an employer is able to choose which definition they wish to adopt as the basis for assessing earningsOne definition of a pay reference period is aligned to tax weeks or months and one is aligned to the period by reference to which a person is paid their regular wage or salary

Payroll Reference PeriodsSlide26

An employer can choose to change from using one definition to anotherThere is nothing that prevents an employer using one definition for some workers and the other definition for other workers

Payroll Reference PeriodsSlide27

Payroll Reference Periods

This can be an area of much confusion…

…there are examples out there to help understand this. Slide28

Cause of much confusion!!

Maximum period is 3 monthsIt is only postponement of starting contributions, but the employer MUST have a scheme in place at Staging Date

In reality period is actually shorterPostponementSlide29

Sage (the most popular payroll package) works in tax months commenced 6th

of monthTherefore, end of a 3 month postponement would be 6th of month 2, not 3!

PostponementSlide30

Directors and automatic enrolmentSlide31

Should they be automatically enrolled?

If the director has no contract of employment, then N0For example, a director of a husband and wife owned company

The answer is yes for an employee director, e.g. non-shareholding finance director of a company, but only if there is another director working under a contract of employment.Directors and automatic enrolmentSlide32

Question 1: A director of a company with two employees does not draw a salary, but only takes dividends. Is the director considered a worker?

Answer: If a director is

not drawing a salary, but is simply drawing the profits from the business that he or she has an ownership in, then the director would not be a worker (providing the director is not

working under an employment contract or personal services contract). However, the two employees would be considered as workers. Questions and answersSlide33

Question 2: A director of a company is the only employee of the company and she does earn a salary. Would the director be considered a worker?

Answer: No, if an individual is a director of a company and the company has no other employees, that individual is not a worker by virtue of any office that they hold or contract of employment under which they work. The company is therefore not subject to the employer duties.

Questions and answersSlide34

Good, bad and ugly – master trusts and how these work

Sustainability

Occupational schemes vs. GPPsSlide35

The DWP cap of 0.75% pa is not generous

The total first year charge received by the pension provider for an employee earning £20,000 where contributions are based on Qualifying Earnings is?£10.50?

£12.98?£2.12?

Costings – generallySlide36

C. £2.12!

In addition, if using an Occupational Scheme, e.g. a Master Trust, then scheme must pay a levy of 87p per member per year, leaving a net charge of

Costings Slide37

£1.25!!Are Master Trusts sustainable in the long-term?

In addition, Master Trusts have to meet further requirements….

Costings Slide38

Independent Audit of Master Trust SchemesCosts about £100,000!!

List of schemes on The Pension Regulator’s Website

Master Trust Assurance Slide39

BCF Pension TrustNational Employment Savings Trust (NEST)

National Pension Trust

NOW: PensionsSEI Master TrustThe BlueSky

Pension Scheme (TBPS)The Pensions TrustThe People’s PensionWelplan

Master Trust Assurance Participants Slide40

Choosing a pension schemeSlide41

It’s not as simple as it looks – you often can’t use the existing scheme and new schemes have to do particular things

Will the existing pension allow the employer to run auto-enrolment? It has to meet two particular requirements – and most don’tIf the employer doesn’t have a pension you will need to get one that meets three sets of requirements

Choosing a pension schemeSlide42

Automatic enrolment schemes must meet three sets of criteria:

Automatic enrolment criteria

Qualifying

criteria

Quality

requirements

Choosing a pension scheme – qualifying criteriaSlide43

To be an AE scheme, a scheme must meet the “Qualifying Criteria” and in addition it must not contain any provisions that:Prevent the employer from making the required arrangements to automatically enrol, opt in or re-join a jobholder

Require the jobholder to express a choice in relation to any matter, or to provide any information, in order to remain an active member of the schemeIn addition there are to be no deductions from the jobholders pot to pay to a third party, except to the scheme providerIt also needs to have its main administration held in the UK or EEA

Choosing a pension scheme – qualifying criteriaSlide44

The scheme must:

Be an occupational or personal pension scheme

Be tax registeredAnd satisfy certain minimum(qualifying) requirements

It can be a UK or non UK scheme but has differing minimum requirements according to the country of originChoosing a pension scheme – qualifying criteriaSlide45

The employer must make contributions in respect of the jobholder

The total minimum contribution (however calculated) must be at least 8% of the jobholders qualifying earnings each pay reference period

A minimum employer contribution however calculated must be at least 3% of the jobholders qualifying earnings each pay reference periodAlternatively you can choose the “certification” option

Minimum qualifying requirementsSlide46

9

%

of ‘basic’ pay

8

%

of qualifying earnings

7

%

of total earnings

Tier 1

Tier 2

Tier 3

Each option has differing employer and employee payments between staging date and October 2018

Tier 2 is the minimum requirement for all schemes

Three certification options available Slide47

The minimum contribution level to meet the contribution quality requirement is based on qualifying earnings:

Qualifying earnings are a band of earnings of more than £5,824 and £43000 or less

These are the figures for 2016/17 and are expected to change each year.

Three certification options available Slide48

Consists of the following components of pay:Salary

WagesCommissionBonusesOvertime

Statutory Sick PayStatutory Maternity or Paternity payStatutory Adoption Pay

Qualifying earnings?Slide49

Basic Pay basis is generally recommended when employer has workers with high commission or bonus earnings.Pensionable Earnings definition is Basic Pay.Permitted to have more than one category, so different groups of workers can have different bases.

This will require you to do some calculations to determine which is best for the employer.

Basic pay vs. total pay – who is it suitable for?Slide50

Payroll return information for checking

Information to

payroll

Information is checked and configured. Payroll informed all OK

Payment actions and payslips produced

How does automatic enrolment work in practice?

Existing practiceSlide51

Payroll return information and Auto Enrolment spreadsheet for checking

Information to

Payroll (plus opt out notices)

Information is checked and configured. Payroll informed all OK

Payment actions and payslips produced

New Auto Enrolment requirements

Opt out notices reviewed

Admin processed spreadsheet to pension company to check worker status

Pension company produce report – check this with payroll spreadsheet and confirm all OK

If not OK, errors need to be resolved between pension company and payroll before releasing back to payroll

Payroll produce pensions cont. spreadsheet

Pensions cont. spreadsheet loaded to pension company to allow them to collect premiums

How does automatic enrolment work in practice?Slide52

Existing payroll companies – good and bad – do you know what they do? Some payrolls will do assessments, others won’t – and they provide different outputs.

Payroll Reference Period - what is it – how does it work? It is really important to understand these as these determine what you are assessing and when.

Non eligible staff – do I need a scheme for these and what do I tell The Pensions Regulator? YES and NO!

Extras…. Slide53

Any questions?

Stewart Tomlinson - McParland & Partners

Erica Dietsch – Hawsons Wealth Management LtdSlide54

All of the information is based on our current understanding of the relevant legislation and regulations (including drafts) and may be subject to change.

Hawsons Wealth Management Limited is authorised and regulated by the Financial Conduct Authority, Number 586696.

McParland and Partners is authorised and regulated by the Financial Conduct Authority, Number 475973

Please note that the value of investments and the income derived from them may fluctuate and investors may not receive back the amount originally invested. Past performance is not necessarily a guide to the future. Current tax levels and reliefs may change and the investments and investment services referred to may not be suitable for all investors.

Hawsons Wealth Management Limited is registered in England. Registered No. 3508607. Registered office: Pegasus House, 463a Glossop Road, Sheffield, S10 2QD.

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