Auto enrolment - frequently asked questions
Your questions answered.
Do the employer duties apply to all employees?
People who are treated as workers
The following people are treated as workers but are not covered by the employer duties:
- those who do not work or ordinarily work in the UK
- those under age 16, and
- those aged 75 and over.
People who are not treated as workers
The following people are not treated as workers so the employer duties don't apply to them:
- the self-employed
- members of the armed forces, and
- directors of companies unless they have a contract of employment to work for that company and there is someone else employed by the company under a contract of employment.
Since 6 April 2016 employers have discretionary powers to not enrol directors or those with protection from the lifetime allowance charge.
What happens if someone works for more than one employer?
Each employer will be required to fulfil their employer duties separately, ignoring any other employment or earnings that the worker has.
Josh has his own limited liability company. He's the sole director and employee. Does he have to comply with the employer duties? Would this change if he employed someone else?
Directors of a company are not treated as workers for the employer duties, unless:
- they have a contract to work for the company, and
- they employ at least one other person.
So if Josh doesn't have a contract of employment to work for the company, he won't be treated as a worker, even if he takes on other workers who will be covered by the employer duties. If he does have a contract to work for the company, he still won't be treated as a worker unless he takes on another worker. In this case, both Josh and the other person would be treated as workers.
Why would an employer use deferment?
Employers have a duty to assess their workforce to identify the types of worker they employ and the duties they'll have to carry out. For a maximum of three months employers have the option to defer:
- the assessment of their workers, or
- the auto enrolment date for workers who have been assessed.
This allows employers to smooth the administration of their employer duties and align it with their existing business processes. For example, they can use deferment to:
- align the assessment of workers with their payroll processes
- avoid having to assess seasonal workers
- avoid having to automatically enrol those with one-off spikes in earnings
- avoid calculating pension contributions on part month earnings
They can use deferment with their whole workforce, groups of workers or individuals.
Does a Limited Liability Partnership (LLP) have to comply with the auto enrolment requirements?
Partners are normally self-employed, so they're not treated as workers for the employer duties. However, any employees of the LLP (for example administration staff) are likely to be covered by the requirements.
Employers do have to consider that salaried partners in the LLP may be classed as ‘workers’. Such employers will need to consider this aspect and seek advice if required.
How do I check if the minimum contribution levels have been met when salary exchange is being used for an auto enrolment scheme?
As far as the auto enrolment rules are concerned, you must use the post exchanged salary to calculate whether or not minimum contributions have been met.
This is best covered by an example:
- Pre exchange salary is £50,000.
- Contributions are 3% employer and 5% employee (including tax relief).
- The employee wants to use salary exchange to make their £2,500 contribution.
- Their post exchange salary is therefore £47,500, meaning that the actual employer contribution of £4,000 (£1,500 + £2,500) represents 8.42% of the £47,500 salary, not 8%.
It therefore needs a bit of maths to calculate in advance what level of sacrifice would result in the minimum contribution being met when measured against the post exchange salary. Most providers require the minimum to be based on the pre-exchange salary, accepting that this results in the contribution then being more than the minimum required when measured against the post exchange salary.
In the above example, the employer is making the minimum contribution and the employee is using salary exchange to make the employee contribution. It's unlikely that providers and/or the Pensions Regulator will allow the total required contribution to be funded by employee salary exchange. The employee must always have the option to go for a conventional employer/employee contribution basis and there must be no coercion into using salary exchange
If a company has three directors and no other employees, do they need to set up an auto enrolment scheme?
They can choose whether to apply the auto enrolment duties or not. So, they don’t need to set up a scheme. All the other duties and safeguards will apply as usual.
There’s more information on this exemption in paragraphs 104-106 of the automatic enrolment detailed guidance.
Does a non-UK employer have any duties in respect of employees in the UK?
If the contract of employment places the employee in the UK, the employer will have to assess that employee even if the employer is based overseas.
There is more information on assessing a worker in the automatic enrolment detailed guidance.
What are the options if an employee is affected by the tapered annual allowance, and the total contributions to the auto enrolment scheme are greater than their available annual allowance for the current year?
There are three main options:
- The contributions can continue as expected and the employee pays any annual allowance tax charge due. However, there could be unused annual allowance from a previous tax year which could reduce or eliminate any tax charge.
- The scheme could switch to a definition of qualifying earnings for this individual. This would allow the employee to continue being a member of the qualifying scheme but contributions would be below the tapered annual allowance at £3,522.40 gross for tax year 2023/24 (8% contribution between qualifying earnings of £6,240 and £50,270) therefore avoiding a charge. The employee could negotiate further salary or bonus in exchange.
- Contributions can be restricted to the available annual allowance or not made at all therefore avoiding any annual allowance tax charge. This means the individual has to cease membership of the qualifying scheme if contributions are below the auto enrolment minimum. Any contributions still being made can be made to another scheme or another non-qualifying section within the same scheme. Again, the employee can negotiate further salary or bonus in exchange for the lower or no employer contribution.
Can an employer offer a flexible benefits package, which means other benefits can be offered instead of auto enrolling in the scheme?
Yes. But care must be taken. The employer must have a legitimate purpose for offering the flexible package; they cannot be seen to be inducing their workers to opt out or cease membership. The Pension Regulator covers this in its regulations under paragraphs 26-27 and example 3 of Safeguarding individuals - automatic enrolment detailed guidance for employers The Pensions Regulator.
What happens to auto enrolment pension contributions during parental leave?
If an individual in an qualifying scheme goes on parental leave, they can continue to pay contributions during their parental leave. During the period of paid parental leave, individual contributions will be based on the actual earnings the individual is receiving. Employer contributions will be based on the level of earnings immediately before parental leave.
The information provided is based on our current understanding of the relevant legislation and regulations and may be subject to alteration as a result of changes in legislation or practice. Also it may not reflect the options available under a specific product which may not be as wide as legislations and regulations allow.
All references to taxation are based on our understanding of current taxation law and practice and may be affected by future changes in legislation and the individual circumstances of the investor.