How will automatic enrolment impact payroll procedures?

By: Matthew Selby

Date: 4 April 2013

How will automatic enrolment impact payroll procedures?/black calculator{{}}Introducing a new pension scheme of any sort will affect both the payroll and HR department of any business. However, introducing an automatic enrolment pension scheme will mean that these departments will need to have their functions reviewed. This needn’t be as daunting as it sounds, because to effectively tackle auto enrolment they will need to: 

  • track which workers are eligible for the scheme
  • ensure workers who opt out are re-enrolled after three years
  • refund contributions to those who opt out within the correct period.

The first thing that needs to be determined is the enrolment date for a business of your size which can be found on the Pension Regulator’s website. Once you have this information, you know how much time you have to make any necessary changes to your departments, and can put the procedures in place for HR to liaise closely with payroll.

After an initial assessment of your workforce and the number of workers you will need to enrol, you will need to decide on a pension provider. There are two main categories – government-backed and private providers. Both have their individual benefits; more in-depth information can be found on individual provider’s websites. Once a provider has been chosen it is advisable to align your payroll and HR systems with those offered by your pension provider to ensure the smoothest possible transition.

Once this has been arranged, any data preparation will need to start before your enrolment date. Understanding the specific joining process of your provider is essential, as well as deciding whether you are going to enforce contractual enrolment, whereby you automatically enrol eligible workers into the scheme as soon as they start working for you.

Because workers have the option to opt out within a month of being enrolled it is imperative that, as a business, you familiarise your HR and payroll departments with the process. This may require new procedures to be put in place or old ones to be amended. The same goes for any business software used within these departments. As an employer you will need to pay in your contributions and your employees’, as well as calculating these contributions.

If employees choose to opt out, any contributions made within the first month will need to be refunded to them, and details put in place to re-enrol them within three years as the law requires. A record-keeping system should be put into place – if not already done – to ensure keeping track of contributions and enrolments is as simple as possible.

The last thing left is to inform your employees of the procedures in place and their options regarding them in writing. It may be advisable to hold a meeting where questions can be asked and answered, although workers will require a written confirmation of the pension scheme. Examples and templates can be found on the NEST Pensions website.

By Matthew Selby, who writes about pensions and employee benefits for Now Pensions and others.