How does the Earnings Assessment work?
In preparation for your auto enrolment staging date you will need to assess the relevant employees based on what is payable in the pay reference period and how much of this consists of qualifying earnings. Qualifying earnings is a reference to a bandings of earnings between £5,824 and £42,385 and covers a number of different types of earnings that you may not have considered as pensionable pay.
What do Qualifying Earnings include?
Qualifying earnings by definition include:
Qualifying earnings also include a range of statutory payments:
- Sick Pay
- Maternity and Paternity (Ordinary or Additional) pay
- Adoption pay
It is your responsibility, as the employer, to determine the total amount of qualifying earnings an employee receives, not including benefits.
An assessment will involve comparing the gross qualifying earnings for that employee’s pay period against the lower level of qualifying earnings (minimum earnings or minimum salary) for that period. Each type of pay frequency has its own upper and lower levels of qualifying earnings (set by The Pensions Regulator) , as can be seen in the table below, with the limits acting as an earnings trigger for pensions automatic enrolment.
Auto-enrolment Earnings Thresholds for 2015-16
|Pay Reference Period||Annual||Monthly||Weekly||Fortnightly||4-weekly||Quarterly||Bi-annual|
|Lower level of qualifying earnings||£5,824||£486||£112||£224||£448||£1,456||£2,912|
|Earnings trigger for automatic enrolment||£10,000||£833||£192||£384||£768||£2,499||£4,998|
|Upper level of qualifying earnings||£42,385||£3,532||£815||£1,631||£3,221||£10,597||£21,193|
For example, if an employee is paid weekly then their gross qualifying earnings for that week will be compared against the lower level of qualifying earnings limits for that period; which currently stands at £112.
There are two approaches to auto-enrolling an employee. The first is the calculation approach which involves enrolling an employee onto a scheme that meets statutory minimum contribution levels. The second approach is certification, which involves approving a pre-existing pension scheme arrangement under tier 1, tier 2 or tier 3 certification levels.
You may also choose to use a combination of the two approaches, where you choose to set up a new scheme for auto-enrolled employees and certify an existing scheme for employees who are already members.