How to prepare your payroll for auto-enrolment contribution increases

22 February 2019

As the 6 April 2019 fast approaches employers must prepare to increase the minimum contributions that they and their employees are paying into their pensions under auto-enrolment (AE) legislation. 

The new minimum contributions will be set at 3 per cent employer and 5 per cent employee (8 per cent total contribution) in comparison to the current rates of 2 per cent employer and 3 per cent employee (5 per cent total contribution). 

As this increase draws near there are a few key steps an employer can take to ensure a smooth transition.

  • Conduct a review of rates - Its helpful for employers to review the current contributions across all staff in the AE pension schemes to understand how many are going to have to be increased. For some employers this may reveal they already meet the new criteria and so no further action is required. It is important to remember that employers who pay higher than their minimum contribution can then cover some of their employees amounts. For example, if an employer pays 8 per cent in to the pension the employees portion is covered. Its very important to review the company pension scheme and what has been offered. 
  • Conduct spot checks on the scheme itself - Whilst looking at the rates of contributions it is an ideal time to spot check the pension process within payroll. Checking other items around the set up of the scheme is well worth doing. Picking a few example employees and how they should be set up is useful to check the process is working correctly. 
  • Prepare records of those who need to be uplifted - prior to the April 2019 payroll it is useful to have identified the employees who will need to be increased and hold in one place, so the uplift can be done in one action outside of the usual payroll process. This is also useful when checking and validating with the pension providers records following the run to ensure all parties have the new rates held and are in line. 
  • Communicate to employees - Preparing employees for the increase is very important not only to ensure full compliance but also in order to manage the expectations of the workforce. By pre-warning of the upcoming change this will hopefully reduce any questions or concerns later for the payroll and HR team to deal with. 

The key to success in this process is preparation and knowing your scheme and employees. 

If have got any questions regarding the above, please contact Simon Balaam.