Payroll and pensions: Everything you need to know

An eligible jobholder is defined under the following terms by GOV.UK:

• Aged between 22 and State Pension age
• Earn at least £10,000 per year
• Normally work in the UK

Pensions legislation is evolving quickly and payroll must keep pace with every update to stay compliant and ensure their employees are being paid the correct amount into their pot. Inadvertent or not, any companies found to have under-paid staff pensions leave themselves wide open to severe reputational damage and hefty fines from the Pensions Regulator. That’s why getting it right the first time is essential for both companies and their payroll function.

Auto-enrolment

It’s no surprise that membership of occupational pension programmes has skyrocketed in recent years. According to the latest stats from the ONS, as of 2018 an estimated 45.6 million people in the UK are registered with a workplace pension programme. Active memberships within the private sector have now reached 9.9 million; an increase of 28.6% from 2017.

That’s evidence enough to suggest that auto-enrolment is having a major impact across the UK economy. However, we also know from research conducted for our 2020 Guide to Payroll that facilitating the pension revolution is anything but a walk in the park for payroll departments.

Just under half (44%) of UK payroll managers rank pension management and auto-enrolment within their top three primary challenges – a clear reflection of the extra work involved with managing compliance, contributions, data transfers, opt-outs and legal communications to staff.

Re-enrolment

Every three years, companies are required to conduct a re-enrolment review across their payroll. This ensures any eligible employees, including those who have previously opted out of a pension, are automatically re-enrolled into a programme by law. Employers must send an official communication to inform employees of any changes within six weeks of their re-enrolment date before submitting a re-declaration to ensure compliance.

One key thing to bear in mind is the specific date that a company chooses for re-enrolment. Every employer must select a single date, regardless of how many payrolls they operate, so it’s important that this aligns with multiple pay frequencies, payroll software capabilities and business processes. Many companies opt for the third anniversary of their staging date out of convenience, though the selected date can fall anywhere within a six-month timeframe.

Outsourcing

Given the various regulations and complex administration involved with auto-enrolment and re-enrolment, many companies are now choosing to outsource their pension schemes to an external provider.

But whilst this is a smart move for any business that cannot manage workplace pensions internally, it also creates more responsibility for payroll to import and export employee data whilst maintaining accurate records across various systems. Manually updating pension data records by hand can quickly become a time-consuming burden for payroll to manage – and that’s putting it lightly.

Payroll systems built with integration and automation at the heart of design are invaluable because they enable greater ability to track and update data between both internal and external systems in real-time. That means less time spent on repetitive admin tasks and data entry, and more opportunity to focus on the bigger picture of people management.

Managing the burden

The rapid evolution of pension programmes and auto-enrolment that we’ve seen unfold over the past decade poses a new set of challenges and pitfalls for payroll departments. Pension payroll software is still in its relative infancy, though it’s clear that a stronger focus on automation and integration is helping to alleviate the burden of laborious manual tasks.

For any business that’s still struggling to stay on top of internal pension obligations, it’s worth seeking the services of an outsourced APS payroll bureau. Expert knowledge often proves vital when streamlining operations, liaising with external pension providers and cutting out errors when submitting starter and leaver forms or monthly submissions.

With so much at stake in terms of regulatory fines and potential reputational damage, it’s down to payroll to ensure the right software and processes are in place to avoid costly mistakes and ensure employees are paid exactly what they are due. With such a strong spotlight centered around pension management at the moment, it certainly pays to get it right at the first time of asking.