Is your payroll ready for auto enrolment?

By Mattioli Woods

22 Apr 2015

With many employers now fully involved in the auto enrolment process, it gives us the opportunity to reflect on what key areas must be focused on to ensure it is a success.

By Taylor Patterson.

One of these key areas is ensuring payroll software is ready to work in conjunction with auto enrolment and your pension scheme.

As part of auto enrolment, you are required to assess staff every pay period to see if they need to be auto enrolled and if they do, then calculate the contribution they require from the employer and the employee into the pension scheme. There are several ways of doing this, however, the most common place for this to be done, and arguably the tidiest place for this to be done, is through payroll.

When set up correctly and using the appropriate software, this can work very well and provides employer support for much of the ongoing burden of assessing staff, record keeping and administration of auto enrolment. It is paramount, however, to ensure the software is set up correctly in the first place.

What should an employer consider with a payroll system?

Assesses your workforce – this is the process of identifying if any member of staff needs to be auto enrolled. The assessment of the workforce must be carried out each pay reference period.

Allows the use of postponement – as employer, you have the option of postponing the auto enrolment of staff for up to three months, for example to tie in with probationary periods. However, this can only be done if the software you are using can facilitate this.

Calculates pension contributions – once the workforce has been assessed and a proportion of staff are required to be auto enrolled, the next step is to calculate how much the employer and employee contributions must be. The minimum contribution levels are being phased in and it is important that the software automatically adjusts contributions in line with minimum contribution increases.

Handles opt-in and joining – Not all staff will need to be auto enrolled, however, all employees have a right to opt in and if they do so the employer must join them to a pension scheme. The software must be able to identify an opt in and calculate contributions accordingly.

Handles opt outs and refunds – employees who are auto enrolled can choose to opt out. Providing they do this within 1 month of joining, they can receive a full refund of the employee contribution that was paid into the scheme. The software must be able to refund contributions in the following pay period to employees and consequently deduct no further contributions for the employee.

Supports you in generating and issuing letters to your staff – communicating with employees is a core regulatory requirement of the legislation, and the right software can reduce the workload of the employer by producing employee notifications at the appropriate times.

Keeps records and provide reports – another time cost saving can be realised through your software, it may be able to keep records and provide regulatory reports as part of the ongoing auto enrolment process, this is one less job for the employer.

Interoperates with some or all pension scheme provider systems – this is another area that some software may fall down. Each pension provider has unique requirements for joining members and paying contributions. A common way of doing this is through a file upload onto the pension provider website. Payroll software is capable of producing a file ready to be uploaded which will then auto enrol employees and also notify the provider of the contributions payable. It is important to check the software can produce both a joining and contribution file and that they can do it in the format required for your pension provider. As you can see, payroll software has the potential to assist you in much of the auto enrolment employer duties, however, it is essential that everything is set up correctly within the software and it can provide the support necessary.

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