DM2632044 v2C This presentation remains the property of The Pensions Regulator. The content of these slides should not be altered in any way. Identifying.

DM2632044 v2C This presentation remains the property of The Pensions Regulator. The content of these slides should not be altered in any way.

Identifying your workforceand calculating minimum contribution levels

Neil Esslemont

Head of Industry liaison

Rebecca Woodley

Industry liaison manager

The information we provide is for guidance only and should not be taken as a definitive interpretation of the law.


Since the recording of this webinar there have been a number of changes in automatic enrolment legislation. The principles described remain the same. The changes are:

Automatic enrolmentChanges in legislation - 1 April 2014

• The deadline for completing registration with the regulator has been extended to five calendar months.

• The period for completing automatic enrolment (joining window) has been extended to 6 weeks

• A new definition of a pay reference period has been introduced which allows employers to choose to align the assessment of their workers to tax weeks or tax months

• The deadline for a number of the information requirements has been extended to 6 weeks www.tpr.gov.uk/docs/resource-info-to-workers.pdf

• The Opt-out window remains as one calendar month.

• For the earnings thresholds for the current tax year visit our website at: www.tpr.gov.uk/earnings-thresholds


http://www.tpr.gov.uk/docs/resource-info-to-workers.pdf

http://www.tpr.gov.uk/earnings-thresholds


Scope of the webinar

• Which workers are affected?

• Assessing workers and worker categories.

• Using Qualifying Earnings.

• Calculating pension contributions.


Which workers are affected?

• A worker could be subject to automatic enrolment if they: work under a contract of employment (an employee);

or have a contract to perform work or services personally

(i.e. they cannot send a substitute or sub-contract the work, unless they are unable to perform the work, e.g. due to sickness) and are not undertaking the work as part of their own business.


Who is a “worker”?

• Workers, for the purposes of the new duties, could be:– full or part-time – permanent or temporary / ‘casual’– on ‘zero hours’ contracts– some contractors considered self employed for tax purposes– agency staff– staff seconded overseas– home workers


Worker contracts

• Look carefully at any contractual arrangements and bear in mind:– terms of employment can be implied, rather than explicitly stated

– a contract does not have to be in writing, it can be a verbal contract

– some staff are considered workers even when not carrying out work, if there is an enduring employment relationship (e.g. some ‘zero hours’ contracts)

– if a worker has more than one contract with an employer, the employer should make a ‘reasonable judgement’ as to whether to aggregate or separately assess


Who is a personal services “worker”?

• An individual considered as self-employed for tax purposes, could still be assessed as a “worker” for the purposes of the new duties, if:

1. the employer expects them to perform the work themselves and they cannot sub-contract the work or send a substitute,

unless they are unable to perform the work (e.g. due to sickness)and

2. they are not undertaking the work as part of their own business, so: most, or all, of the following statements are true:- the employer ...

has control over an individual’s method of work (e.g. hours worked) provides employee benefits bears all the significant financial risks in carrying out the work

(e.g. the worker is not financially responsible for faulty work) provides what is required for the individual to carry out the work

• The list is not exhaustive, an employer must take into account all relevant considerations and make a reasonable judgement


• A worker can be considered to be wholly working in the UK– if a worker’s contract specifies that the work is to be done in the UK; or – if they are an “offshore worker” and work in the territorial waters of the

UK (or in the UK sector of the continental shelf – please see Employer’s Detailed Guides); and

– there is no simultaneous employment relationship between the worker and a non-UK employer for the same work.

– It does not matter whether the worker is a UK national.– It does not matter whether they make occasional business trips outside

the UK.

– † excluding the Channel Isles and the Isle of Man

Wholly working in the UK? †


• Or, if they are not wholly working in the UK (e.g. an airline pilot), do they ordinarily work in the UK

• What does the employment contract specify & how does it work in practice:– where the worker begins and ends their work;– where their private residence is, or is intended to be;– where the worker’s headquarters is;– whether they pay income tax and National Insurance contributions in UK;– whether their work has a sufficiently strong connection to the UK; and– what currency they are paid in.

† excluding the Channel Isles and the Isle of Man

Ordinarily working in the UK? †


Who is seconded overseas?

• Individuals working on secondment from another company will usually remain a worker for the company from which they are seconded

• If a UK-based employer makes a short term placement of a worker outside the UK they will need to consider whether the worker’s base remains in the UK despite their placement overseas, so:– there is an expectation on the part of the employer that the worker will

resume working in the UK for the UK-based employer at the end of the placement; and

– that worker would be, were it not for the placement, assessed as working or ordinarily working in the UK;

then the worker is likely to be considered to be ordinarily working in the UK and could be subject to automatic enrolment


Who is seconded to the UK?

If a non-UK employer sends a worker on secondment to a UK organisation, the non-UK employer will need to consider whether the worker’s base remains outside the UK despite their secondment to the UK, so:

if the worker’s contract remains with the employer located outside the UK;

and

there is an expectation on the part of the employer that the worker will return to work for their employer outside the UK at the end of their placement;

then the worker is unlikely to be considered to be ordinarily working in the UK and therefore would not be subject to automatic enrolment


For a worker who:

i. works under a contract of employment (an employee); or

ii. is directly contracted to perform work personally to the company who pays them (a ‘personal services worker’):

the ‘employer’ will be the legal entity named in the contract.

Otherwise

iii. If a worker who is supplied by an agent to a third party (the principal), to perform work personally, under a contract or arrangement between the agent and the principal: the agent or principal will be the agency worker’s ‘employer’,

depending on which is responsible for paying the worker; or, if it cannot be determined who is responsible for paying the worker,

then whichever actually pays the worker will be the ‘employer’.

Who is the worker’s ‘employer’?


Who else is exempt?

• Other exemptions from automatic enrolment duties include:– some office-holders, e.g. a non-executive director

(but only for the activities they carry out as an office holder)– serving members of the military– a company with only one employee, if that employee is a director of that

company

DM2632044 v2C The content of these slides should not be altered in any way.

NoSTEP 1

Is the person a “worker”?

Not a “worker”

Yes

Yes

No

Yes

A ‘Personal services worker’?

An employee?Not a “worker” or is other employer’s

“worker”

No

No

Yes

Answered all possible

questions above?Then go to

STEP 2

Please refer to the Employers Detailed Guides …

Vol 1 – Employer Duties & Defining the Workforce:• Personal services workers• Office Holders

Vol 3 – Assessing the Workforce:• Ordinarily working in UK

In Step 1, determine if the person is covered by the automatic

enrolment legislation(you can answer the questions

in the diamond boxes in any order):

If you reach a yellow lozenge, then the person is either not a “worker” and does not have to be assessed for

eligibility and/or is not your responsibility.

Otherwise, if you have answered all possible questions

and not come to a yellow lozenge, proceed to Step 2.

Whollyor Ordinarily

Working in UK?

Excluded?(e.g. some

Office Holders)Not a “worker”


Is worker an employee?

No

Your “worker”

Employment contract with you?

Yes

Other employer’s “worker”

STEP 1

Is the person a UK worker?

STEP 2

Who is worker’s “employer”?

Please refer to the Employers Detailed Guides …

Vol 1 – Employer Duties & Defining the Workforce:• Personal Services contracts• Agency Workers

In Step 2, is the person your responsibility as the ‘employer’?

Answer the questions, in order, to see if the person is your

“worker” - and if you therefore have a duty under the automatic

enrolment legislation.

Yes

You contract

with another company / agency?

Your “worker”

No

Are theyresponsible for

paying the worker?


Yes

No

Yes

You pay the worker?

Yes

No

Yes

No


No


STEP 2

Who is worker’s “employer”?

Is worker an employee?

Yes

No

Your “worker”

Employment contract with you?

Yes

Not a Jobholder or Entitled Worker

Yes

NoSTEP 1

Is the person a UK worker?

Not a “worker”

Yes

Yes

No A ‘Personal services worker’?

An employee?Not a “worker” or is other employer’s

“worker”

No

No

Yes

Whollyor Ordinarily

Working in UK?

Yes

No

Excluded?(e.g. some

Office Holders)Not a “worker”

You contract

with another company / agency?

Your “worker”

No

Are theyresponsible for

paying the worker?


Yes

No

Yes

You pay the worker?

Yes

No


Two examples.

Who is a worker?


Is Eddie a worker?

Eddie is a self employed graphic designer. He works regularly for a company, Acme Laptops Ltd.

His role is unique. He designs (and, if necessary, prints on his own equipment) all the flyers and magazine ads. He also designs and updates their website and forum. Eddie is very important to Acme Laptops’ marketing strategy. It is a nightmare when Eddie is too busy working for other customers, because his contract with Acme does not permit him to send a replacement.

Eddie works unsupervised and, generally, he works from home, but sometimes he works in the offices of Acme Laptops. Eddie invoices Acme Laptops at the end of each campaign design and guarantees the quality of his material.

Should Acme Laptops consider Eddie to be their worker?


Is Eddie a worker?

Eddie is a self employed graphic designer. He works regularly for a company, Acme Laptops Ltd.

His role is unique. He designs (and, if necessary, prints on his own equipment) all the flyers and magazine ads. He also designs and updates their website and forum. Eddie is very important to Acme Laptops’ marketing strategy. It is a nightmare when Eddie is too busy working for other customers, because his contract with Acme does not permit him to send a replacement.

Eddie works unsupervised and, generally, he works from home, but sometimes he works in the offices of Acme Laptops. Eddie invoices Acme Laptops at the end of each campaign design and guarantees the quality of his material.

Eddie is a personal services contractor, but is unlikely to be a “worker”, as:

i) he is not an employee ii) he sometimes uses his own equipmentiii) he works unsupervised & iv) he guarantees the quality of his work


Is Georgina a worker?

Georgina is a self employed IT professional who works full time for Acme Laptops Ltd. Georgina supports Acme Laptops’ in house payroll system and is very important to Acme Laptops and no one else has the expertise to do her work when she’s on holiday.

Georgina works in Acme Laptops’ payroll administration team in their offices, alongside Acme Laptops’ own employees, but sometimes she is allowed to work from home. Georgina invoices Acme Laptops at the end of each month based on the number of days she has worked.

Should Acme Laptops consider Georgina to be their worker?


Is Georgina a worker?

Georgina is a self employed IT professional who works full time for Acme Laptops Ltd. Georgina supports Acme Laptops’ in house payroll system and is very important to Acme Laptops and no one else has the expertise to do her work when she’s on holiday.

Georgina works in Acme Laptops’ payroll administration team in their offices, alongside Acme Laptops’ own employees, but sometimes she is allowed to work from home. Georgina invoices Acme Laptops at the end of each month based on the number of days she has worked.

Georgina will probably be considered a personal services “worker”, because: she is supervised by Acme Laptops’ (needs permission to work at home) she works in their offices (uses their office equipment and supplies) she is paid a daily rate (the completed work is not guaranteed)


Calculating pension contributions



• In order to work out what pension contributions are required, there are certain steps you will need to take:

1. Assess your workers (always using qualifying earnings)

2. Determine pensionable earnings (which may or may not be based on qualifying earnings)



Step 1 – assessment

• Determine each worker’s category - on their Assessment Day:• the employer’s Staging Date for any existing workers;• the first day of employment for any new joiner after the staging

date;• the birthday of someone turning 16 or 22 years old; or• the first day of the Pay Reference Period (PRP) for any other

worker assessed after the employers staging date; or• if Postponement has been used, the last day of the Postponement

period.

• This assessment must be based on their total Qualifying Earnings - paid in the PRP in which the Assessment Day falls – and compared to the earnings thresholds


Qualifying EarningsAge Range

16-21 22-SPA* SPA*-74

Under £5,668† pa Entitled Worker

Between £5,668 pa and up to £9,440† pa

Non-Eligible Jobholder

More than £9,440† pa Non-EligibleJobholder

EligibleJobholder

Non-EligibleJobholder

* SPA = State Pension Age

† Figures for 2013/14

Worker categories

Entitled WorkerUnder £5,668† pa

Between £5,668 pa and up to £9,440† pa

Non-Eligible Jobholder

More than £9,440† pa Non-EligibleJobholder

Non-EligibleJobholder

EligibleJobholder

Employer must automatically enrol Eligible Jobholders into an ‘automatic enrolment

pension scheme’

Can request to ‘Join’ a

pension scheme

Non-Eligible Jobholders can ‘Opt In’ to an

‘automatic enrolment pension scheme’


Thresholds v Pay Reference Periods (PRP) 2013-14

† For other PRP durations, multiply the number of weeks in the PRP by the weekly amount (eg £182.00)

or number of months by the monthly amount (eg £787.00) etc - or pro-rata if not an exact multiple of any of the above.

N.B. The Secretary of State will review these figures each tax year.

Pay Reference Period †

LowerEarnings Threshold

Earnings trigger for automatic

enrolment

Upper Earnings Limit

Annual £5,668 pa £9,440 pa £41,450.00 pa

Bi-annual £2,834.00 £4,720.00 £20,725.00

1 quarter £1,417.00 £2,360.00 £10,363.00

1 month £473.00 £787.00 £3,454.00

4 weeks £436.00 £727.00 £3,188.00

Fortnight £218.00 £364.00 £1,594.00

1 week £109.00 £182.00 £797.00


Qualifying Earnings

• Qualifying Earnings is defined as all of the following items paid to a worker:

• salary• wages• commission• bonuses• overtime• statutory sick pay• statutory maternity pay• ordinary or additional statutory paternity pay• statutory adoption pay; and• any pay element which could be considered as any of the above

(excluding expenses)



Step 2 - determine pensionable earnings

• Pensionable earnings will be defined by the pension scheme rules

• Pensionable earnings may (or may not) be based on Qualifying Earnings

• If Qualifying Earnings used for pension scheme rules, only Qualifying Earnings between the Lower Earnings Threshold and the Upper Earnings Limit may be pensionable

• If Qualifying Earnings are not used for pension scheme rules, then ‘Self Certification’ may be used

• Minimum contribution levels are being phased in over a number of years


Min DC 8% total*

Min DC 5% total*

Minimum DC 2% total contribution*

DC Scheme Minimum Contributions

May2017

April2014

Oct 2018

Oct 2012

Oct 2017

June2015

Large employers

Medium employers

Small/micro employers

New born Employers

* % of Qualifying Earnings

Feb 2018

Minimum DC 1% employer contribution*

Min DC 2% employer*

Min DC 3% employer*

Phase 1

Phase 2 Phase 3


DC Self Certification

An employer may have an existing scheme – or may wish to use a new scheme - which

does not use Qualifying Earnings as the definition of pensionable earnings.

So, as an alternative, the minimum requirements can be met by DC pension schemes

if, under the scheme rules (or agreements, in the case of a personal pension scheme):

1. the total minimum contribution must be at least 9% of the scheme’s definition of pensionable pay (at least 4% of which must be the employer’s contribution) providing at least basic pay (from £1) is pensionable; or

2. the total minimum contribution must be at least 8% of the scheme’s definition of pensionable pay (at least 3% of which must be the employer’s contribution) provided that pensionable pay constitutes at least 85% of total pay (the ratio of pensionable pay to total pay can be calculated as an average at scheme level); or

3. the total minimum contribution must be at least 7% of the pension scheme’s definition of pensionable pay (at least 3% of which must be the employer’s contribution), provided that total pay is pensionable.


DC Self Certification during Phasing period

Up to 1st Oct 2017

1st Oct 2017 to 30th Sept

2018

From 1st Oct 2018

Pensionable Salary(Basis of

% Contributions)

Tier / Set

1

2% Employer/ 3% Total



Scheme Definition

(if >= basic pay from £1)

Tier / Set

2




85% of Total Pay (scheme average)

Tier / Set

3




100% of Total Pay


Thresholds v Pay Reference Periods (PRP) 2013-14

† For other PRP durations, multiply the number of weeks in the PRP by the weekly amount (eg £182.00)

or number of months by the monthly amount (eg £787.00) etc - or pro-rata if not an exact multiple of any of the above.

N.B. The Secretary of State will review these figures each tax year.

Pay Reference Period †

Lower level of qualifying earnings

Earnings trigger for automatic

enrolment

Upper Earnings Limit

Annual £5,668 pa £9,440 pa £41,450.00 pa

Bi-annual £2,834.00 £4,720.00 £20,725.00

1 quarter £1,417.00 £2,360.00 £10,363.00

1 month £473.00 £787.00 £3,454.00

4 weeks £436.00 £727.00 £3,188.00

Fortnight £218.00 £364.00 £1,594.00

1 week £109.00 £182.00 £797.00


Andy – a part time sales manager with variable hours

Annual bonus

Overtime

Not pensionable for schemes based on QE

(above Upper Earnings Limit)

Pensionable earnings for s

ch

em

es based on Q

E

Commission paid on large

sale


Example – Minimum requirements scheme (based on Qualifying Earnings in 2013/14)

Tax YearPay Reference

Period Lower Earnings

ThresholdEarnings trigger for

automatic enrolmentUpper Earnings

Limit

2013/14 1 month £473.00 £787.00 £3,454.00

Pay Reference Period

(Monthly)Basic Salary

Total Qualifying

Earnings (QE)

Pensionable Earnings

(QE – LET)†Employer Pension Contribution (Er)

Employee Pension Contribution (Ee)

Total Pension Contribution

Worker Category (if aged between 22 and

State Pension Age)

Apr-13 £800.00 £800.00 £327.00 £3.27 £3.27 £6.54 Eligible JobholderMay-13 £400.00 £400.00 £0.00 £0.00 £0.00 £0.00 Entitled Worker

Jun-13 £474.00 £474.00 £1.00 £0.01 £0.01 £0.02 Non Eligible JobholderJul-13 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 Entitled Worker

Aug-13 £473.01 £473.01 £0.01 £0.01 £0.00 £0.01 Non Eligible JobholderSep-13 £925.50 £1,234.00 £761.00 £7.61 £7.61 £15.22 Eligible Jobholder

Oct-13 £787.00 £787.00 £314.00 £3.14 £3.14 £6.28 Non Eligible JobholderNov-13 £466.00 £4,234.00 £2,981.00 £29.82 £29.81 £59.63 Eligible JobholderDec-13 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 Entitled Worker

Jan-14 £500.00 £500.00 £27.00 £0.27 £0.27 £0.54 Non Eligible JobholderFeb-14 £522.00 £2,123.00 £1,650.00 £16.50 £16.50 £33.00 Eligible JobholderMar-14 £455.00 £455.00 £0.00 £0.00 £0.00 £0.00 Entitled Worker

£5,802.51 £11,480.01 £6,061.01 £60.63 £60.61 £121.24

Scheme Contributions1% Er + 1% Ee = 2% Total

Total annual Qualifying Earnings £11,480.01Less Lower Earnings Threshold -£5,668.00Total annual Pensionable Earnings £5,812.01

Contributions if calculated annuallyEmployer

Contribution (Er) = 1%

Employee Contribution

(Ee) = 1%

Total Pension Contribution =

2%£58.13 £58.12 £116.25

Annual calculation differs from totals

of each PRP

†Capped at Upper Earnings Threshold minus LET


Example – Self Certified pension scheme (based on Tier 2 & basic salary only)

Tax YearPay Reference

Period Lower Earnings

ThresholdEarnings trigger for

automatic enrolmentUpper Earnings

Limit

2013/14 1 month £473.00 £787.00 £3,454.00

Pay Reference Period

(Monthly)Basic Salary

Total Qualifying

Earnings (QE)

Pensionable Earnings

(basic salary)Employer Pension Contribution (Er)

Employee Pension Contribution (Ee)

Total Pension Contribution

Worker Category (if aged between 22 and

State Pension Age)

Apr-13 £800.00 £800.00 £800.00 £8.00 £8.00 £16.00 Eligible JobholderMay-13 £400.00 £400.00 £400.00 £4.00 £4.00 £8.00 Entitled Worker

Jun-13 £474.00 £474.00 £474.00 £4.74 £4.74 £9.48 Non Eligible JobholderJul-13 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 Entitled Worker

Aug-13 £473.01 £473.01 £473.01 £4.74 £4.73 £9.47 Non Eligible JobholderSep-13 £925.50 £1,234.00 £925.50 £9.26 £9.25 £18.51 Eligible Jobholder

Oct-13 £787.00 £787.00 £787.00 £7.87 £7.87 £15.74 Non Eligible JobholderNov-13 £466.00 £4,234.00 £466.00 £4.66 £4.66 £9.32 Eligible JobholderDec-13 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 Entitled Worker

Jan-14 £500.00 £500.00 £500.00 £5.00 £5.00 £10.00 Non Eligible JobholderFeb-14 £522.00 £2,123.00 £522.00 £5.22 £5.22 £10.44 Eligible JobholderMar-14 £455.00 £455.00 £455.00 £4.55 £4.55 £9.10 Entitled Worker

£5,802.51 £11,480.01 £5,802.51 £58.04 £58.02 £116.06

Scheme Contributions1% Er + 1% Ee = 2% Total

Total annual Qualifying Earnings £11,480.01Less Lower Earnings Threshold N/ATotal annual Pensionable Earnings £5,802.51

Contributions if calculated annuallyEmployer

Contribution (Er) = 1%

Employee Contribution

(Ee) = 1%

Total Pension Contribution =

2%£58.04 £58.02 £116.06

Annual calculation is the same as the

totals of each PRP


New regulations for minimum requirement schemes†

† i.e. Pension schemes matching the Pensions Act 2008 section 20/26 rules

For legal minimum DC schemes based on Qualifying Earnings:

1. The pension provider has to do an annual test to check that the contributions paid over the preceding 12 months are equal to the entitlement under the scheme rules.

2. If a jobholder’s automatic enrolment date is in the middle of a Pay Reference Period (PRP), the scheme rules may require a part period contribution calculation.

From 1st Nov 2013, the new regulations mean:

1. If an employer chooses to use the new tax week or month PRP for the assessment of workers, the scheme rules can specify that the contributions required are specified per PRP and the scheme provider will not need to do this 12 month check.

2. If the employer chooses to use a tax week/month PRP to assess their workers (and the pension scheme rules allow it), then the first and last contribution would be based on a full PRP and there would not be any part-period contributions, so: for workers joining in the middle of a PRP - the contribution for that part-period would be zero and a full contribution would be due for the following PRP; for leavers - a full contribution would be due, even if for only a part-period.

N.B. The effective start date for pension scheme membership remains the assessment date and this is not changed by any of these new regulations.


Useful Links

• Automatic enrolment guidance and tools www.thepensionsregulator.gov.uk/employers.aspx

• Planning for Automatic Enrolment www.tpr.gov.uk/employers/planning-for-automatic-enrolment.aspx

• Know your workforce www.tpr.gov.uk/employers/know-your-workforce.aspx

• Detailed guides for Employers (and pension professionals): www.tpr.gov.uk/doc-library/automatic-enrolment-detailed-guidance.aspx

• What will automatic enrolment cost me?:www.tpr.gov.uk/employers/what-will-automatic-enrolment-cost-me.aspx

• What information do employers need to provide to their workers? www.tpr.gov.uk/docs/Pensions-reform-resource-information-to-workers.pdf

• Information about Registration and employer checklist: www.tpr.gov.uk/employers/registration.aspx www.tpr.gov.uk/docs/automatic-enrolment-online-registration-checklist.pdf

• Letter templates for employers: www.tpr.gov.uk/employers/letter-templates-for-employers.aspx

http://www.thepensionsregulator.gov.uk/employers.aspx

http://www.tpr.gov.uk/employers/planning-for-automatic-enrolment.aspx



http://www.tpr.gov.uk/employers/know-your-workforce.aspx



http://www.tpr.gov.uk/doc-library/automatic-enrolment-detailed-guidance.aspx

http://www.thepensionsregulator.gov.uk/employers/what-will-automatic-enrolment-cost-me.aspx

http://www.tpr.gov.uk/docs/Pensions-reform-resource-information-to-workers.pdf

http://www.thepensionsregulator.gov.uk/employers/registration.aspx

http://www.tpr.gov.uk/docs/automatic-enrolment-online-registration-checklist.pdf

http://www.tpr.gov.uk/employers/letter-templates-for-employers.aspx


Any questions?


Automatic enrolment

We are here to help!

Contact us at www.tpr.gov.uk/contact-us.aspx

Subscribe to our news by emailwww.tpr.gov.uk/subscribe.aspx


http://www.tpr.gov.uk/contact-us.aspx

http://www.tpr.gov.uk/subscribe.aspx

DM2632044 v2C This presentation remains the property of The Pensions Regulator. The content of these slides should not be altered in any way. Identifying.

Documents

pensions regulator

dm2632044 v2c

automatic enrolment

tax weeks

tax months

contract of employment

worker contracts

overseas home workers