Auto-enrolment for small companies: How to get financially prepared

IN: Guides

By 2018, all employers who had a PAYE Scheme as at 1 April 2012 will be expected to automatically enrol certain types of workers into a workplace pension scheme in a bid to encourage more people to save for their retirement.


By 2018, all employers who had a PAYE Scheme as at 1 April 2012 will be expected to automatically enrol certain types of workers into a workplace pension scheme in a bid to encourage more people to save for their retirement.

When the scheme was launched back in 2012, more than seven million people were not saving enough into a pension scheme, and with retirees believed to require at least £15,000 per year, people may have to make serious financial cutbacks once they retire.

For this reason, the government has introduced auto-enrolment to encourage workers to start building up a healthy pension pot as soon as possible. Workers who are not automatically enrolled will have the right to join the pension scheme and their employers may be required to contribute into a pension for them. Workers will also have the option to ‘opt-out’ if they wish, putting their pension saving on hold for the future - although employers must be careful not to encourage this.

Although the scheme could encourage millions of workers to start thinking about their retirement and saving for the future, some employers are concerned about the impact it will have on their business. As auto-enrolment is gradually introduced in workplaces across the country, business owners will find that they need to set time aside to assess their finances and complete any additional administration that the scheme brings.

It’s not unusual for employers to have lots of questions in the lead up to the scheme’s introduction, and in this post we’ll run through some of the most common concerns.

Will my business be affected?

If you employ at least one member of staff you’ll need to automatically enrol them into a pension scheme providing they meet the following criteria:

  • They’re between the ages 22 and state pension age
  • They work in the UK
  • They have tax and National Insurance deducted from their wages
  • They’re likely to have gross earnings of more than £833 per month / £192 per week

You may also have to automatically enrol other people that are not on your payroll. It is envisaged that between 10 and 11 million people who are not already saving for their retirement will be eligible for automatic enrolment.


How much will it cost me?

The amount of money that you are expected to contribute towards your employees’ pensions will depend on your staging date, which you can find detailed in the below table. These percentages are a minimum, and you can offer your employees a higher contribution if you wish.


Employer minimum contribution

Total minimum contribution

Before 30/09/17



01/10/17 – 30/09/18



01/10/18 onwards




Fortunately, auto-enrolment pensions won’t produce any additional tax liabilities as employer contributions can be offset against corporation tax and are not subject to employer National Insurance contributions.

When considering the amount required for contributions, businesses would be wise to imagine they’re enrolling their entire workforce to ensure they have enough money. However, not only will some workers not be eligible, but a percentage of workers will opt out of the scheme. Back when the scheme was introduced, experts were predicting that 30 per cent of employees would opt-out – but in practice, to date this figure has been as low as 10 per cent.

Small businesses that do not comply with auto-enrolment pensions may find themselves facing fines. The Pensions Regulator can apply fixed fines of £400 or daily escalating fines of between £50 -£10,000 depending on the size of the business. 


What do I need to do?

Find out your staging date

Each employer has been issued a date by which they need to comply with the auto-enrolment scheme. This is called the staging date. To find out your staging date you should refer to the Pensions Regulator's website. Provide a point of contact

If you have a member of staff who will be in charge of overseeing auto-enrolment in your company, you can nominate this person as your point of contact. By informing The Pensions Regulator of their contact details, all correspondence can be sent directly to them and they’ll be sent any important information in the run up to your staging date. You can nominate a point of contact here.

Develop your initial plans

Many employers who have already enrolled onto the scheme felt that they needed to start preparing for the initiative up to a year before their staging date.

Once your staging date has arrived and your employees are enrolled onto their pension scheme, you’ll start to see a growth in your monthly outgoings. For some businesses, this increase in expenditure may come as a shock, and so it’s vital that you start budgeting and saving as early as possible to meet the demand.

If your company has several members of staff, you’ll need to involve payroll, your HR administrator and your accountant so that they can carry out some of the day-to-day requirements and ensure that everything goes to plan.

You may also benefit from speaking to a pension provider, a financial advisor or your payroll provider to gain more support and guidance.

Find out who to enrol

You should automatically enrol all workers who meet the eligibility criteria at the time of your staging date.

Since your employees’ circumstances are likely to change over time, this is something you will need to monitor continuously. You will need to automatically enrol workers who have turned 22 and are under state pension age, or part-time employees whose salary has increased to more than £833 per month or £192 per week, for example.

If employees aren’t enrolled, but wish to be, you will need to be prepared to join them to the scheme, and may also be required to make contributions on their behalf. You’ll also need to be able to remove employees from the scheme if they choose to opt-out.

Choose a pension scheme

If you already have an existing pension scheme for your workforce you may be able to use it for auto enrolment too. Due to the wealth of employers signing up to pension schemes in the coming years, try to approach your pension provider as early as possible as they are likely to be taking on lots of new contracts. Remember that the type of pension scheme that you choose could have an impact on your employees’ satisfaction. By investing in a rewarding scheme that will help your employees to save towards their pension, you’re helping to provide for their futures.

Managing cash flow with auto-enrolment

While employee satisfaction is important, it’s also vital that you ensure that the scheme you select is good value for money for your business. The scheme will need to be maintainable so that you don’t find your business struggling with cash flow each month due to high pension contributions.

If you do find your business battling cash flow issues, invoice finance could be the solution to free up both cash and time. Chasing payments on invoices could become a thing of the past, as invoice finance solutions can release the cash you have locked away in unpaid invoices.

Choose your software and check records

With so much admin required to keep the auto-enrolment process running smoothly, specially designed software may be required to help you to keep track when a new member of staff is ready to be auto-enrolled. Once you have confirmed that you have the software required, make sure it works prior to your staging date.

Your chosen pension provider will need to access a number of records prior to your staging date, and so it’s helpful to get these in order as soon as possible. You’re most likely to need the dates of birth of your employees along with their National Insurance numbers and latest contact details, but contact your provider to find exactly what they need.

Tell your staff

You will be required to issue certain statutory communications to all workers. Your staff may also have already heard about auto-enrolment and may have questions for you. If they haven’t heard about the scheme, you may have to explain what it means for them.

Make sure you explain the importance of saving for a pension as early as possible, while also explaining that they can opt-out of the scheme if they wish to. Be careful not be seen to encourage someone to leave as this could result in a penalty from the Pensions Regulator.      

Automatically enrol your staff

When your staging date approaches, and you have everything in order, use your payroll software to determine who needs to be enrolled. Your pension provider will have outlined some payment deadlines that you should meet.

Once your employees have been enrolled, write to them to let them know in detail how the new system affects them.

Complete your declaration of compliance

Once you have enrolled your employees on the scheme, you must complete a declaration of compliance to confirm to The Pensions Regulator that you have complied with your new legal duties. Your declaration must be completed within the first five months after your staging date.

Auto-enrolment is an ongoing process

Some of your employees may not meet the necessary criteria in time for your staging date. But even after you’ve started making the initial contributions you’ll need to conduct a monthly check to see if any employees have recently met the criteria. You’ll also have to take note every time an employee asks to ‘opt-out’ of the scheme so that you can stop deductions and arrange a refund of any contributions they have paid to date.

It’s understandable that in the lead up to auto-enrolment you may be concerned about how you will manage your finances, but with plenty of preparation you can free up cash and save money for emergencies. By planning ahead and putting money in a business savings account, you can build a reliable financial safety net and make use of competitive interest rates.

With the introduction of auto-enrolment, many SMEs may find themselves struggling to manage their cash flow. Thankfully, with the help of cash flow finance options, businesses can unlock the much needed capital tied up in their assets and unpaid invoices. For more information, please don’t hesitate to get in touch.

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