Auto enrolment rules can be complex to explain, and the terminology can sometimes be confusing. Here we attempt to break through the confusion and jargon and explain just how it works for an employer AutoEnrol Ltd who has just started it's company pension.
The company has three part-time employees on small salaries, and 4 full-time family employees all of whom earn £2,000 per month. The application of the different elements of the rules can be problematic for an employer.
Valerie is 25 and is paid a salary of £8,000 a year for 15 hours weekend work. She is classed as a non-eligible employee as her income doesn't reach the upper threshold of £10,000. This means she can decide to auto-enrol and the company must then accept her into the scheme, and pay employers contributions to the scheme.
Wilma is 20 and is paid £11,000 for her evening and weekend work. Although she is over the earnings threshold of £10,000, she is aged under 21 and because of this she is also a non-eligible employee.
Xavier is 63 and he works just a few hours each week. He earns a modest £5,500 and as his salary is below the bottom limit of £5,772 he is classed as an entitled worker. This means Xavier could ask the employer to take him into auto enrolment, but the employer then has no obligation to make any employers contributions.
Edward Smith, the father, is 76 and is excluded from the scope of Auto Enrolment as he is above the State Pension Age.
Angus Smith has decided to opt-out of auto enrolment for his own reasons. He is taxed as normal and he receives a net salary of £1,625.20, as shown below.
Before auto enrolment, Billy Smith was in a personal pension which is better than auto-enrolment. Billy wants to add £200 per month to his pension. He is also an excluded employee, as he is already in an acceptable pension scheme. Billy only actually pays £160 per month to the pension and he gets no tax relief, but the Government contribution a further £40 directly to his pension fund. His net salary is £1,465.20 which is £160 lower than Angus.
Calum Smith has auto-enroled in the company scheme and pays 10% employee contributions (£200). His net salary is also £1,465.20 which is £160 lower than Angus. This reflects the £200 paid into the pension, less tax relief of 20% (£40) given through the payslip. His pension fund increases by £200 each month, and the Government does not top this up.