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Pension Auto Enrolment And Agency Workers

pension auto enrolment and agency workers

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Pension auto enrolment looms large for all companies in the coming years and agency workers will be affected by it as well.  Recruitment agencies will therefore be caught in the auto enrolment process leading to increased costs which may or may not be passed onto their clients.In this blog we look at pension auto enrolment and agency workers.

Recruitment agencies must carefully manage opt outs and efficiently implement the auto enrolment process.  This could be difficult due to the transient nature of agency workers, therefore, it is important to have good systems in place.

Agency workers who are eligible job holders, subject to age and earnings criteria, must be auto enrolled.  They are called this because they are ‘eligible’ for automatic enrolment. These are workers who:

• are aged between 22 and state pension age
• are working or ordinarily work in the UK under their contract
• have qualifying earnings payable by the employer in the
relevant pay reference period that are above the earnings
trigger for automatic enrolment (currently £9440 in tax year 2013/14)

Non eligible jobholders and entitled workers need not be auto enrolled unless they request it in writing.  Only the truly self employed need not be auto enrolled.

The obligation to provide the pension lies with the “employer” for the purposes of the
worker’s contract. In the absence of a worker’s contract, the obligation to provide the
pension lies with whichever party is responsible for paying the agency worker or who actually does the pay worker.  Therefore this would mean the recruitment agency is required to provide the pension.

The pension can be a private pension, provided it meets the Pension Regulator assessment test, NEST – the government pension scheme or the Peoples Pension, an alternative that has been set up primarily to meet the needs of pension auto enrolment.

Initially, minimum contributions of 1% from both the agency worker and the employer are required based on qualifying earnings which includes salary, wages, commission, bonuses, overtime, statutory sick pay, statutory maternity pay, ordinary or additional statutory paternity pay and statutory adoption pay.

Basic salary would be a good starting point.  This will include any commission, bonuses, overtime or similar payments and any shift premium pay.

Contributions shall rise to 3% for employee and 2% for employer from October 2017 and 5% for employee and 4% for employer from October 2018.

Recruitment agencies will have to auto enrol both their own employees as well as agency workers, where appropriate.

It is possible to postpone auto enrolment for three months.  This would give the recruitment agency time to decide whether the agency worker will be given continued work.  If the agency worker leaves during the three months, then pension auto enrolment is not necessary.  It will be important for agencies to keep track of their agency workers and record earnings information in order to be able to work out pension auto enrolment requirements at the end of the three months if the worker remains with the recruitment agency.  This will place an increased admin burden on recruitment agencies that is why an effective system is needed.

It could be argued that many agency workers will opt out of pension auto enrolment due to the low wages many receive and the requirement to have work for only a short period of time. However, it is illegal for any employer to encourage opt out of pension auto enrolment.  The decision must be that of the agency worker themselves without due influence or enforcement.

The time and cost of preparation for auto enrolment can be significant so recruitment agencies should check their staging date (http://www.sjbealehrconsult.co.uk/pdfs/Staging%20Dates%20-%20Pension%20Auto%20enrolment.pdf).  The staging date might seem very far away, but it will soon come round.  Recruitment agencies that do not comply will face heavy fines.  Planing ahead is therefore vital.