Pension contributions for temporary staff
Pension contributions for temporary staff are now firmly on the agenda for employers. The Government has responded to the major shortfall in future pension provision with the introduction of the Pensions Act 2008. The Act stipulates that every UK employer now has the legal duty to automatically enrol eligible staff into a workplace pension scheme, and to make a 3% contribution.
The changes apply to temporary or seasonal staff, and workers with variable incomes. Permanent or temporary, if staff members are at least 22 years old, and make over £10,000 per year, they must be auto enrolled.
If workers are younger than 22 and/or have earnings below the £10,000 threshold, then they can still opt into the scheme if they make more than £6,136 yearly and are between 16 and 74 years old. However, employers must still make contributions. Those workers who aren’t eligible to opt can still request that a pension scheme is set up by the employer. The difference being that employer’s aren’t required to make a contribution.
Pension contributions for temporary staff are a bit of a minefield. So what should employers do to get it right?
Choose a pension scheme
First things first; choose an appropriate pension scheme. Do this in advance of employing your first eligible worker, or an existing worker becoming eligible. It’s important to do this as soon as possible, as this process can be time consuming. You must ensure that the chosen scheme is set up for automatic enrolment. Your accountant or financial advisor can assist with this.
Identify which workers are eligible
Ascertain which employees are eligible. As mentioned above, there are simple criteria for this when it comes to employees with a steady income. They must If they’re over 22 years old and earn in excess of £10,000, they must be auto-enrolled. Pension contributions for temporary staff work differently and we’ll discuss this below.
Assess temporary workers / those with variable pay, every pay cycle
Pension contributions for temporary staff and seasonal workers with fluctuating pay-packets are less straight forward. Your duty as an employer is to assess their pension scheme eligibility, every single time you pay them. Whilst this can require a great deal time and effort, help is at hand. Some payroll software will assess staff each pay cycle, and if eligible, calculate the appropriate contribution. Certain selected pension schemes also offer to do these things for you.
It’s important to remember that temporary staff may only work for you for a short period, and join and leave between pay periods. If you know that certain employees will be with you for less than 3 months, then it’s possible to delay assessing eligibility. This is known as postponement. During this time, you don’t need to put them into a pension scheme unless they request it.
Put eligible employees into a pension scheme
Once it’s been identified which of your workers are eligible, you’ll need to put those that are into your chosen pension scheme, along with any non-eligible staff who have expressly requested it.
The pension provider will require all information about each staff member. You’ll be responsible for providing this, enabling them to set them up on the system.
Write to employees
You must write to each member of staff individually and let them know whether or not they’re eligible for automatic enrolment. This must be done within 6 weeks of the date that an eligible employee starts working for you, or an existing employee becomes eligible.
For any members of staff whose assessment has been postponed, you must also let them know in writing how automatic enrolment applies to them. This must be done within 6 weeks of the start of postponement.
Some pension providers will write to your staff on your behalf. Alternatively, letter templates are available to download from the Pensions Regulator.
Start paying pension contributions to eligible workers’ schemes
You must then start paying contributions into the schemes of your eligible staff as per the guidelines discussed above.
The stated contribution of 3% of earnings, is a minimum only. Employers can choose to contribute more than this. In this case, the employee may then contribute less, as they’re only required to make up the total to 8%. Employee’s can also choose to make higher payments if they wish.
Employer’s are legally required to declare their compliance. The declaration of compliance checklist details all the required information, and where you can find it. You can then complete the declaration of compliance online. This demonstrates that you’ve completed your responsibilities. It’s strongly advised to start your declaration early, as it can take time to prepare.
There’s a lot to take in, but your pensions provider should be able to assist you throughout the process. And its important that you do it. Failure to comply fully within the allotted timeframes can result in hefty fines. It’s vital that employers understand and implement what it required of them.
If you have yet to action this and your staff are still within the first 6 weeks of eligibility, then you need to work quickly. If you’ve missed the 6-week cut-off period, then never fear. If you start the process now, then any necessary pension contributions can be backdated. It’s certainly in your own interests, as well as those of your staff, to remedy the situation as soon as possible. After all, it’s better late than never.