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Research indicates that people working in the manufacturing sector are more likely to join their company pension schemes than in any other industry. In fact nearly three quarters of people in the manufacturing industry join their company pension scheme, compared to just over a third in the retail sector. It is therefore crucial that employers within the manufacturing sector are aware of the auto-enrolment (AE) requirements introduced by Government legislation.

Issues to Consider

Calculating the staging date

There are a number of important stages to be completed in order to successfully identify and implement the AE requirements for your business. Each employer will have a ‘staging date’ when the automatic enrolment requirements will first apply to it.

Broadly, the staging date is determined by size of PAYE payroll, with the largest employers (120,000+) commencing on 1 October 2012 and medium sized employers (250+) on various dates up to 1 February 2014. Employers can look up the staging dates applicable for different-sized PAYE schemes on the Pensions Regulator’s (Regulator) website by submitting their PAYE reference online.

Problems can arise if there is a discrepancy between the staging date that the regulator assigns and the date that the employer believes applies to it. In order to avoid this, employers should ensure that they provide the correct information to the regulator. Errors in calculating the correct staging date can lead to complaints from workers. Enrol workers too late and the employer may need to make backdated contributions, but too early and the employer could face claims for unlawful deduction from employees’ wages.

Assessing the workforce

One of the trickiest aspects of the AE process can be assessing to which workers the employer duties will apply. This must be carried out at the staging date and also a number of later dates. It is important to note that AE is not limited to employees, but extends to the wider group of “workers”. Although for some employees the categorisation as a worker may be obvious, there are a number of difficult cases and employers should ensure that they are familiar with guidance from the regulator and the requirements of the AE legislation. In particular, employers in the manufacturing industry need to watch out for workers who work in various locations or are expatriates.

Once the employer knows who qualifies as a worker for the purposes of AE, there is a three-part assessment in order to determine whether employer duties will apply to that worker. This will consider:

  • the worker’s age;
  • whether the worker works in the UK under his contract; and
  • the worker’s earnings to see whether qualifying earnings are payable in the relevant pay reference period.

Again, there are a number of tricky areas for employers to look out for, including persons who are exempted workers for the purposes of AE and workers who have fluctuating earnings. Once its staging date has passed, each employer will have to continue to monitor the workforce and identify the Automatic Enrolment Date (AED) for each:

  • new worker who is an eligible jobholder;
  • existing worker with threshold earnings who reaches age 22; or
  • existing worker who meets the threshold earnings limit for the first time.

Further, the employer’s duty to re-enrol eligible workers which mainly arises around the time of the third anniversary of the original staging date is already a live issue for many larger employers and will soon be on the horizon for many more. Again, these difficulties can be overcome by employers ensuring that their records and payroll processes are equipped to deal with re-enrolment and also that they are planning for it well in advance.

The AE process

Broadly speaking, an employer will have one month from its staging date (and from any later AED) to enrol eligible workers into a qualifying pension scheme. Specified information about the process must be given to each eligible worker within one week of the AED. The Pensions Regulator has published detailed guidance in relation to the communications which should be sent to workers regarding AE and this guidance is a useful reference point in preparing any communications.

Employer duties beyond the staging date

Employer duties continue beyond the staging date, requiring the continual monitoring of workers who are not already eligible job-holders to determine if and when they qualify as a different category of worker for AE purposes. For employers in manufacturing, these on-going duties are unlikely to prove more problematic than the initial staging process, provided that the necessary monitoring and recordkeeping systems are in place.