The good news is that most employers perceive automatic enrolment as a good policy and are supportive of its objectives and aims.  Couple this with the Pensions Regulator increasingly focussing on automatic enrolment and a greater number of flexible working arrangements being adopted (such as zero hours contracts), and it is more important than ever for employers to ensure that they are aware of their full automatic enrolment obligations and are complying with them. In this alert, we summarise those obligations and what they mean for employers.

The Automatic Enrolment Obligation

UK employers are required to automatically enrol certain workers into a pension scheme which satisfies certain conditions (a qualifying pension scheme[1]) and pay contributions which at least meet the minimum required.

Categories of Workers

There are three categories of workers which UK employers need to consider.

1. Eligible Jobholders

An eligible jobholder is a worker who:

• is aged between 22 and State Pension Age;
• is working ordinarily in the UK; and
• has qualifying earnings[2] that exceed the earnings trigger. The earnings trigger is set each year by the Department for Work and Pensions. The current trigger for 2022/23 is £10,000.

2. Non-Eligible Jobholders

A non-eligible jobholder includes a worker who:

• is working mainly in the UK;
• has qualifying earnings that exceed the lower qualifying earnings threshold (which is currently £6,240 per annum); and
• does not meet the criteria of an eligible jobholder for some reason, for example because they are under age 22.

3. Entitled Workers

An entitled worker is a worker who:

• is ordinarily working in the UK; and
• has earnings below the lower qualifying earnings threshold (which, as noted above, is currently £6,240).

What Does An Employer Have To Do?

Automatic enrolment legislation imposes different obligations on an employer, depending on which category of worker an individual falls into.

• Eligible jobholders must be automatically enrolled into a qualifying pension scheme and the employer must ensure that the required contributions in respect of those eligible jobholders are paid. Eligible jobholders must be given a right to opt out and an employer has to re-enrol all eligible jobholders, including those who have opted out, once every three years.
• Non-eligible jobholders must be given the right to opt into a qualifying pension scheme and, if they opt in, the employer has the same contribution obligations as if the worker had originally been an eligible jobholder.
• Entitled workers must be given the right to join a pension scheme (which need not be a qualifying pension scheme). If such workers opt in, the employer is not required to satisfy the same contribution obligations which it would be required to meet if the worker had been an eligible jobholder.

What Happens If An Employer Fails To Comply With Its Automatic Enrolment Duties?

If an employer fails to comply with its automatic enrolment duties, the Pensions Regulator can take enforcement action. Such action can include issuing compliance notices and fixed or escalating penalty notices. The escalating penalty notices, depending on the circumstances, can sometimes be £10,000 per day.

What Does This Mean For Employers?

Employers need to be clear on what their automatic enrolment obligations are, have robust governance in place to ensure compliance with those obligations on an ongoing basis and ensure that they document and record their compliance with their obligations.

[1] A qualifying pension scheme is a registered workplace pension scheme with its main administration in the UK which allows jobholders to join without requiring them to express a choice or provide information to remain a member, and satisfies prescribed quality requirements (which vary depending on the type of scheme). In order to be a qualifying scheme, employers must ensure that they pay the minimum contributions required. The total minimum contribution required is at least 8% of qualifying earnings which must include an employer contribution of at least 3% of qualifying earnings.

[2] Qualifying earnings are, broadly, the gross earnings payable to a worker over a period of 12 months including various components of pay, such as wages, commission, bonuses, overtime and statutory maternity, paternity, adoption and sick pay.