A detailed guide to Automatic enrolment for software developers

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for software developers

Automatic

enrolment

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About this guidance

This guidance is aimed at software developers involved with payroll applications and wider business

applications, for example HR and pensions administration, that may be involved in supporting an employer in complying with their new automatic enrolments duties.

It is of particular relevance to developers with employer customers who have fewer than 50 persons in their PAYE scheme. This is because with the staggered introduction of the new duties employers with between 50 and 249 persons in their PAYE scheme will become subject to the new duties during the current financial year. Employers with fewer than 50 persons in their PAYE scheme will become subject to the new duties during the 2015-2016 financial year.

This guidance is a comprehensive guide to the key concepts in automatic enrolment included in the ‘core’ payroll routines and wider routines supporting the end-to-end duties. It describes the employer duties using a technical notation and may not be suitable for a more general readership.

For a more general readership we have published a series of guides that cover all aspects of the new pension duties for employers. These are available at www.tpr.gov.uk/detailed-guidance. In addition, we have a range of short introductory information and online tools available at www.tpr.gov.uk/beginner.

This version of the Software guide has been updated with the qualifying earnings thresholds and earnings trigger for automatic enrolment figures for the 2014-2015 tax year. As a result of the changes in these figures we have made some minor changes to content. Annex C provides details of the significant changes made to this guidance.

This guide will be updated to reflect changes to the values of the qualifying earnings thresholds and the automatic enrolment trigger point, and any other relevant legislative change. Developers can sign up to the news-by-email service on the regulator’s website to find out when the guide has been updated and published: www.tpr.gov.uk/news.

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1. This guide is designed to help software developers update their products to support their employer customers in complying with their new pension duties in the Pensions Act 2008.

2. It is aimed at developers with any type of software product that employers may rely on to help them comply with their new pensions duties (eg payroll, HR or pensions administration software).

3. This guide pays particular attention to payroll routines because employers will need to accurately assess their workers’ earnings and make pensions contributions to comply with their duties.

4. Payroll software is expected to play a key role to enable employers to do this.

5. Discussions with software providers have indicated that payroll software is likely to support employers to comply with the core automatic enrolment duties to a large extent. However, some systems may not be able to support the full range of employer duties.

6. In its communications to employers, The Pensions Regulator (‘the regulator’) will encourage employers to seek further information from their payroll software provider about the extent their existing software will support them to comply with the duties.

7. With the staggered introduction of the new duties (see paragraphs 25 to 28), it is crucial for software developers with products used by employers with fewer than 50 workers to take immediate action based on the information in this guide. Employers with fewer than 50 persons in their PAYE scheme will become subject to the new duties during the 2015-2016 financial year.

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Introduction

Please note

This guide is not intended to be a definitive way of complying with the duties of the Pensions Act 2008. The Pensions Regulator cannot provide a definitive interpretation of the law; only express a view.

The guide is designed to assist business software providers in developing software to enable their customers (employers) to comply with their duties. Any alternative approach to that appearing in this guide will nevertheless need to meet the underlying legal requirements.

Using the guidance

8. The guidance for software developers is a comprehensive guide to the key concepts in automatic enrolment included in the ‘core’

payroll routines and wider routines supporting the end-to-end duties. It describes the employer duties using a technical notation and may not be suitable for general readership.

9. This guidance is divided into three sections. The first is an introduction to automatic enrolment, providing a brief summary of the new duties for an employer and the different categories of worker for whom they will have these duties. The second section provides guidance on the ‘core functionality’ requirements of payroll routines and the third section covers the wider end-to-end support of the duties.

10. In our view payroll software may automate core functionality which will support an employer in complying with their duties. This is covered in section 2 of the guide. This core functionality is:

• the assessment of eligibility for automatic enrolment and re- enrolment (age, earnings and pension membership) and other worker types

• the identification of the automatic enrolment date and the enrolment date (opt in)

• the deduction of pensions contributions according to pension scheme rules

• refunds following opt-out.

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11. In section 2 the focus is on the first two bullets above as these are less established functionality for payroll routines.

12. We have also published an updated test data companion that accompanies this guide for software developers. The test data companion provides fictitious case studies that illustrate some of the more complex scenarios in the core functionality in section 2.

13. In addition other business applications such as HR or pensions administration software may automate elements of the end-to-end duties to support employers, primarily information requirements which are covered in section 3.

14. We have structured sections 2 and 3 so that they contain:

• Overview – a brief summary of what is covered in each section and assumptions made.

• Further guidance (section 2 only) – this outlines the assessment process and the application of the key features of the

requirements that underpin the calculation routines.

• Specification of calculation routines – data items listed in tabular form with technical notation supported by a brief description. There are either two or three tables of worker data items or system derived data items. The calculation routines described in each section make use of:

a. Automatic enrolment data (section 2 only), and b. Worker data

c. Data derived by the payroll (or other) system.

• Reports capability – a summary of the suggested outputs from the calculation routines for an employer to progress action in order to comply with their duties.

• Record-keeping – the records within the calculation routines that will support an employer in complying with the requirement to keep records for automatic enrolment.

15. In most cases the brief description in the specification of calculation routines will cover all the relevant points but in a minority of

cases this guidance will refer software developers to the detailed guidance for employers for more information. In any event if developers would like further explanation of the requirements including examples and flow charts they should refer to the detailed guidance for employers.

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Introduction

16. In the specification of the calculation routines we assume that the calculations are being run for every worker each time payroll is run.

The approach in this guidance is one way of achieving the necessary function within the system. However, there may be other ways to achieve the same function. It is for developers to decide what is appropriate within their system(s).

17. The next section provides a brief summary of the new duties for employers and the different categories of workers for whom the employer has these duties. Section 2 on page 24 details the specification of data and calculation routines for the core functionality.

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the employer duties and defining the workforce

18. In this section we provide a brief overview of:

• the new duties for employers – paragraphs 19 to 24

• implementation of the new duties – paragraphs 25 to 29

• the definition of worker and the different categories of worker – paragraphs 30 to 38

• postponement – paragraphs 39 to 59, and

• cyclical automatic re-enrolment – paragraphs 60 to 78.

1.1 The new duties for employers

19. The new employer duties mean that an employer of a worker (see paragraph 30 for the definition of a ‘worker’) will have to:

• automatically enrol any eligible jobholder into an automatic enrolment scheme, following a prescribed process. The pension scheme must meet certain criteria and the employer will be obliged to make employer contributions to the scheme

• make arrangements to establish active membership of an automatic enrolment scheme, if a jobholder (eligible or non- eligible) chooses to opt in to a pension scheme. The pension scheme must meet certain criteria and the employer will be obliged to make employer contributions to the scheme

• make arrangements to establish active membership of a pension scheme if an entitled worker chooses to join

• give information to their workers about how the different duties affect them

• declare compliance (register) with the regulator to state what they have done to comply with their new duties

• process any opt outs from the pension scheme, including refunds of contributions

• ensure they do not take any action or make any omission by which the jobholder ceases to be an active member of the qualifying scheme

• ensure they do not take any action or make any omission by which the scheme ceases to be a qualifying scheme

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1.0 A brief overview of the employer duties and defining the workforce

• automatically re-enrol any eligible jobholders who opted out or ceased active membership, after a certain amount of time (approximately every three years).

20. In addition, an employer of a worker will be able to choose to use postponement to delay automatic enrolment by a period of up to three months.

21. There are also a number of safeguards in place to protect the rights of individuals. The safeguards mean employers must ensure:

• they do not take any action for the sole or main purpose of inducing a jobholder to opt out of a qualifying scheme, or a worker to give up membership of a pension scheme (this is known as ‘inducement’)

• that during recruitment, they or their representative do not ask any questions or make any statements that either state or imply that an applicant’s success will depend on whether they intend to opt out of the pension scheme (this is known as ‘prohibited recruitment conduct’)

• they do not breach new employment rights for individuals not to be unfairly dismissed or suffer detriment on grounds related to the new employer duties.

22. In addition to the employer duties and safeguards, an employer must keep certain records about how they have met the duties.

23. This guidance does not cover the safeguards or the duties for an employer to:

• ensure they do not take any action or make any omission by which the jobholder ceases to be an active member of the qualifying scheme

• ensure they do not take any action or make any omission by which the scheme ceases to be a qualifying scheme

as these aspects are less suitable for expressing in software/

business rules terms.

24. This guidance also does not cover the rules and calculations for immediate automatic re-enrolment. Immediate re-enrolment is required when a jobholder ceases active membership of a

qualifying pension scheme or the scheme ceases to be a qualifying scheme and it is not of the jobholder’s own account. An automated system cannot know the reason why active membership has ceased and so it is not included here. Cyclical automatic re-enrolment which occurs broadly every three years is included in the guidance (see paragraphs 60 to 78 for more information on cyclical automatic

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25. The new employer duties will be introduced in stages and started in 2012. Each employer is allocated a date through the operation of the law from when the duties will first apply to them, known as their

‘staging date’. The safeguards apply to every employer from 1 July 2012.

26. The staging date is based on the number of people in an

employer’s PAYE scheme so employers with the largest numbers of person’s in their PAYE scheme will have the earliest staging date. Employers with fewer people in their PAYE scheme will have later staging dates. For more information on staging see Detailed guidance no. 2 – Getting ready.

27. Each employer will be contacted directly in advance of their staging date by the regulator. Employers can notify the regulator to bring forward their staging date.

28. Most employers cannot move their staging date backwards under any circumstance. The exception is where an employer meets the definition of ‘small employer’. The legislation describes a particular type of small employer for the purposes of staging. A ‘small

employer’ is an employer who had fewer than 50 workers on 1 April 2012 and who had or was part of a PAYE scheme, or schemes, in which there were more than 50 persons on 1 April 2012. A small employer who matches the description above would ordinarily have an earlier staging date if their PAYE scheme was either not shared or only contained workers. For this reason, a small employer can choose to keep their original staging date or move it to a later new prescribed date so that it becomes their modified staging date. For more information see Detailed guidance no. 2 – Getting ready.

29. It is apparent from the list of duties in paragraph 19 that the action an employer has to take under automatic enrolment varies depending upon what type of worker they have – an eligible jobholder, non-eligible jobholder or entitled worker. It is key for an employer and for any developer of a business application supporting an employer customer in meeting their duties to

understand the different categories of worker. The starting point for this is understanding who is a ‘worker’ for automatic enrolment.

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1.2 The different categories of workers

30. In automatic enrolment, a worker is defined as any individual who:

• works under a contract of employment (an employee), or

• has a contract to perform work or services personally and is not undertaking the work as part of their own business.

31. Anyone who has entered into a contract of this type (sometimes referred to as a ‘contract of service’) with an individual is an employer and will be required to comply with the new employer duties.

32. For some types of workers there are special rules, ie, offshore workers, seafarers and members of the armed forces. For more information about the definition of a worker see Detailed guidance no. 1 – Employer duties and defining the workforce.

33. The employer is responsible for ensuring that they have identified all those working for them who meet the definition of worker as workers. And they are responsible for fully discharging any duties arising in respect of that worker. Once an employer has identified that they have a worker, the next step is to ascertain what type of worker they have.

34. There are two main categories of worker for which the employer duties apply:

• jobholders

• entitled workers.

35. The category of jobholder then further subdivides into two groups:

• eligible jobholders

• non-eligible jobholders.

36. The category into which a worker falls is determined by their age and whether they earn qualifying earnings. See table 1 below for the criteria for each category.

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Table 1

The different categories of worker

Category of

worker Change

Worker An employee or someone who has a contract to perform work or services personally, that is not undertaking the work as part of their own business.

Jobholder A worker who:

• is aged between 16 and 74

• is working or ordinarily works in the UK under their contract

• has qualifying earnings.

Eligible jobholder

A jobholder who:

• is aged between 22 and state pension age

• has qualifying earnings above the earnings trigger for automatic enrolment.

Non-eligible jobholder

A jobholder who:

• is aged between 16 and 21 or state pension age and 74

• has qualifying earnings above the earnings trigger for automatic enrolment or

• has qualifying earnings below the earnings trigger for automatic enrolment.

Entitled worker

A worker who:

• is working or ordinarily works in the UK under their contract

• does not have qualifying earnings.

NB: ‘Qualifying earnings’ is a reference to earnings of between £5,772 and £41,865 (for the 2014-2015 tax year) made up of any of the following components of pay that are due to be paid to the worker:

• salary

• wages

• commission

• bonuses

• overtime

• statutory sick pay

• statutory maternity pay

• ordinary or additional statutory paternity pay

• statutory adoption pay.

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37. The employer duties apply in respect of:

• eligible jobholders

• non-eligible jobholders

• entitled workers.

38. The illustration below shows how the different categories of worker relate to each other. (Note that the size of the components is not indicative.)

Workers

Entitled workers

Jobholders Eligible

jobholders Non-eligible jobholders

1.3 Postponement

39. Postponement is an additional flexibility for an employer that allows them to choose to postpone automatic enrolment for a period of their choice of up to three months.

40. To exercise that choice, the employer must issue the worker or workers with a postponement notice. There are three options with varying levels of information.

41. Postponement can only be used for a worker on certain dates:

• The employer’s staging date, in respect of any workers employed on their staging date

• The first day of employment, in respect of any worker starting employment after the employer’s staging date

• The date a worker employed by them meets the criteria to be an eligible jobholder after the employer’s staging date.

42. Postponement cannot be used at automatic re-enrolment.

43. In addition, an employer can use postponement where they have applied the transitional period for schemes with defined benefits to a worker. For more information on the transitional period see Detailed guidance no. 3b – Transitional period for schemes with defined benefits.

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44. In this guidance the dates on which postponement can be used are given specific titles:

• Worker postponement – this covers postponement at an

employer’s staging date, at the worker’s first day of employment or for an employer using the transitional period for schemes with defined benefits for a worker on the date with effect from which arrangements for active membership fall to be made under the transitional period, and

• Eligible jobholder postponement – this covers postponement at the date that the criteria to be an eligible jobholder are met after the employer’s staging date.

45. The reason for this is that only eligible jobholder postponement can be repeated and so this needs different rules. This distinction and these terms are not used in the detailed guidance for employers.

46. An employer could use postponement to:

• smooth the process of staging, eg automatically enrol groups of workers at different points in the three-month period

• align automatic enrolment with their existing payroll processes, eg to avoid calculation of contributions on part-period earnings, or to maximise the amount of the opt-out period that falls before payroll is run

• smooth the process of the automatic enrolment duty in respect of workers with rare spikes in earnings

• smooth the process of the automatic enrolment duty in respect of short-term workers who leave soon after starting work, or workers who trigger automatic enrolment just before ceasing employment

• smooth the process of fulfilling the information requirements, eg use the postponement notice to fulfil a number of the different information duties for a worker in one go.

47. Once the employer has decided that they are going to use postponement and the type of notice they are going to use the employer then needs to decide on the ‘deferral date’. (The different types of postponement notices are described in section 3: Specification of data sources/calculation routines for wider business support.)

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The deferral date

48. The deferral date is the last day of the postponement period. It is key for the employer as it is the date on which they must assess the worker and it must be included in the postponement notice.

49. The deferral date is a date of the employer’s choosing up to three months after:

• the day after the employer’s staging date, if they are choosing to use postponement on their staging date in respect of any workers employed on their staging date

• the day after the first day of employment, if they are

choosing to use postponement on the first day of employment in respect of any worker starting employment after the

employer’s staging date

• the day after the date the criteria to be an eligible jobholder are met, if they are choosing to use postponement on the date a worker employed by them meets the criteria to be an eligible jobholder after the employer’s staging date

• the day after the date with effect from which arrangements for active membership fall to be made under the transitional period for schemes with defined benefits. This is only applicable if the employer has applied the transitional period for schemes with defined benefits to the worker.

50. The employer may choose any duration of postponement up to the maximum allowed. ‘Months’ means calendar months. For example, if the employer’s staging date is 1 October, the latest possible deferral date they can choose is 1 January.

51. In this guidance the deferral date is expressed in a different notation to that set out in the detailed guidance for employers. It corresponds to Worker postponement end + one day or eligible jobholder postponement end + one day. This is because of the use of flags to prevent action by the employer as a result of an assessment done during the postponement period and the need to remove the flag so that action can be triggered.

Choosing a deferral date

52. An employer can choose their deferral date to suit their existing processes and their reason for choosing postponement subject to it being within the three month period.

53. If, for example, an employer is using postponement to avoid part- period calculation of contributions, they should ensure the deferral

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54. If, however, they are choosing to use postponement for short- term workers who leave soon after starting work, they may wish to choose the latest possible deferral date.

55. Generally, postponement is in respect of a single worker. However, if an employer chooses to use postponement at their staging date, they can choose to use it in respect of one worker, or groups of workers, or all their workers in employment at the staging date.

56. This can be done to stagger the introduction of the employer duties over a three-month period in order to help with the administration of a large number of new joiners to a pension scheme. To do this, an employer may postpone different groups of workers for different periods of time, up to three months after the staging date.

57. Where an employer is postponing groups of workers in this way, they will need to decide on the different deferral dates for each group.

58. On some occasions, an employer may have groups of workers starting employment on the same date and on these occasions, they can use postponement for a group of workers. Again, this could be used to help with the administration of the new duties for these workers.

59. Where an employer is using postponement in respect of a group of workers, each individual worker must be provided with a postponement notice. It is not possible for one notice to cover several workers.

1.4 Automatic re-enrolment

60. There are two types of automatic re-enrolment – cyclical and immediate. With cyclical automatic re-enrolment an employer must put their eligible jobholders who are no longer in pension saving (because they chose to opt out or cease membership after the employer’s staging date) back in to an automatic enrolment scheme on a three yearly cycle. With immediate automatic re-enrolment an employer must put a jobholder (whose active membership of a qualifying scheme has ceased not on their own account) back into an automatic enrolment scheme immediately certain conditions are met.

61. This guidance does not cover the rules and calculations for immediate automatic re-enrolment. Immediate re-enrolment is required when a jobholder ceases active membership of a

qualifying pension scheme or the scheme ceases to be a qualifying scheme and it is not of the jobholder’s own account. An automated system cannot know the reason why active membership has ceased and so it is not included here. For more information on immediate automatic re-enrolment see Detailed guidance no. 11 – Automatic re-enrolment.

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62. Whether cyclical or immediate, the process of automatic re- enrolment is the same as automatic enrolment. The process is described in Detailed guidance no. 5 – Automatic enrolment.

Once enrolled and the jobholder becomes an active member of an automatic enrolment scheme, the jobholder has the right to opt out of the scheme.

63. Cyclical automatic re-enrolment occurs approximately every three years after an employer’s staging date. Essentially cyclical re- enrolment is a repeat of the process the employer carried out on their staging date (or deferral date if they used postponement to postpone all their workers at staging). On their staging date (or deferral date) the employer assessed all those working for them who they considered to be workers in order to identify which worker category they fell into. The employer was then required to automatically enrol any workers who met the criteria to be an eligible jobholder, unless they were already an active member of a qualifying scheme that the employer provided. Following automatic enrolment, the employer was required to complete a declaration of compliance (registration) with the regulator to tell us how they had discharged their duties.

64. With cyclical automatic re-enrolment the employer must assess any workers who opted out or ceased active membership of a qualifying scheme more than 12 months before a specific date – the automatic re-enrolment date. Any workers who meet the criteria to be an eligible jobholder on that date must be automatically re-enrolled, unless they are already an active member of a qualifying scheme that the employer provides. Following automatic re-enrolment the employer is required to complete declaration of compliance again with the regulator (known as ‘re-declaration’) to tell us how they have discharged their automatic re-enrolment duty.

65. For those workers who do not meet the eligible jobholder criteria, the employer has no further duties until the next cyclical automatic re-enrolment, unless the worker gives the employer an opt-in or joining notice or the employer has not yet given the worker:

• information about the right to opt in to an automatic enrolment scheme for jobholders with a right to opt in. If the employer previously used postponement for the worker and the general notices or the tailored notice for a jobholder, this information will have been included in the postponement notice. If the employer had previously applied the transitional period for pension schemes with defined benefits, this information will also have been included in the notice issued to the worker about the deferral of automatic enrolment.

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• information about the right to join a pension scheme for entitled workers. If the employer previously used postponement for the worker and the general notices or the tailored notice for an entitled worker, this information will have been included in the postponement notice, and

• information about the scheme for jobholders who are active members of a qualifying scheme (if the employer previously used postponement for the worker and general notice A this information will have been included in the postponement notice).

66. If the employer has not discharged these information requirements yet for that worker they will have to keep monitoring the worker each pay reference period to identify when any outstanding information requirement is triggered.

67. However, there are some key differences between automatic re- enrolment and automatic enrolment. The first is that, although both automatic re-enrolment and automatic enrolment apply to eligible jobholders, automatic re-enrolment will only apply to eligible jobholders who have already had an automatic enrolment date with that employer. Automatic enrolment dates are explained in section 2 of this guidance.

68. Another key difference is that postponement cannot be used with automatic re-enrolment. If the eligible jobholder criteria are met by a worker on the automatic re-enrolment date, automatic re- enrolment must take place.

The cyclical automatic re-enrolment date

69. The first step for an employer is to know their cyclical automatic re- enrolment date. The employer may choose this date from any date that falls within a six month window, starting three months before the third anniversary of their staging date and ending three months after that anniversary.

Examples of re-enrolment windows

Employer A has a staging date of 1 April 2013. Their first re- enrolment window is 1 January 2016 to 30 June 2016.

Employer B has a staging date of 1 October 2015. Their first re- enrolment window is 1 July 2018 to 31 December 2018.

Employer C has a staging date of 1 February 2017. Their first re- enrolment window is 1 November 2019 to 30 April 2020.

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70. The next cyclical automatic re-enrolment date is a date of the employer’s choosing within a six month window. This six month window starts three months before the third anniversary of the employer’s last cyclical automatic re-enrolment date and ends three months after that third anniversary.

71. When choosing their cyclical automatic re-enrolment date employers should be aware of the interaction with their re-

declaration duty. If an employer does not have workers who meet the criteria for cyclical automatic re-enrolment the deadline for re-declaring with us is the day before the third anniversary of the employer’s last declaration.

72. Given that the employer had four months from their staging date (for an employer whose staging date was before 1 Janaury 2014) and five months from their staging date (for an employer whose staging date was after 1 January 2014) to submit their declaration of compliance, it is possible that the third anniversary of the employer’s declaration may fall within the re-enrolment window (as the re-enrolment window runs for three months after the third anniversary of the staging date (see diagram below). This will not be relevant to an employer who used postponement at their staging date for the maximum three months.

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Earliest possible re-enrolment

date

Latest possible re-enrolment

date

3rd anniversary of staging date -3 months from

before 3rd anniversary of

staging date

+3 months from 3rd anniversary of staging date Re-enrolment window

The day before the third anniversary of declaration can fall on any day within this period

Any 3 year period from declaration which falls within this period will be

outside the re-enrolment window

Latest possible 3 year period from

declaration

+4 months*

from 3rd anniversary

of staging date

+5 months**

from 3rd anniversary

of staging date

* Employers with staging dates before 1 January 2014

** Employers with staging dates after 1 January 2014

The re-enrolment window and the third

anniversary of declaration/re-declaration

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73. An employer who did not use postponement at their staging date for the maximum three months should identify where the third anniversary of declaration falls within the re-enrolment window.

Every employer will have received written confirmation of their declaration from the regulator. An employer should keep a record of the date of declaration. In addition, an employer will be able to see the date they submitted their declaration to us on the online declaration of compliance portal available on our website.

74. Where an employer did not use postponement at their staging date for the maximum three months this deadline for re-declaration where there are no workers to re-enrol will fall part way through the re-enrolment window. If the employer chooses a cyclical automatic re-enrolment date after this deadline and then finds that they have no eligible jobholders to re-enrol they will have missed the deadline for re-declaration and be in breach of the duty.

75. In these circumstances, if an employer cannot be sure that they will have an eligible jobholder to automatically re-enrol, then to be able to comply with their re-declaration duty, the last date from which they can choose their cyclical automatic re-enrolment date is at the end of the period of three years starting from when they provided the previous declaration or re-declaration information.

Who to automatically re-enrol

76. An employer must automatically re-enrol any workers:

• who have had an automatic enrolment date with that employer, and

• who are not active members of a qualifying pension scheme with that employer, and who opted out or ceased membership of a qualifying pension scheme with that employer more than 12 months before the automatic re-enrolment date, and

• who meet the criteria to be an eligible jobholder on the automatic re-enrolment date.

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77. In practice, this is a worker who:

a. the employer has previously automatically enrolled into an automatic enrolment scheme and who then opted out or voluntarily ceased active membership under the scheme rules more than 12 months before the cyclical automatic re-enrolment date (this includes a worker ceasing active membership of the scheme and where active membership has continued but active membership of a qualifying scheme has ceased, for example because the worker has chosen to reduce the level of pension contributions they pay as part of a flexible benefits package) or

b. the employer has previously enrolled (following opt-in) into an automatic enrolment scheme, who whilst an active member met the criteria to be an eligible jobholder and who then opted out or voluntarily ceased active membership under the scheme rules more than 12 months before the cyclical automatic re- enrolment date, or

c. was an active member of a qualifying scheme on the employer’s staging date, voluntarily ceased active membership of that scheme more than 12 months before the cyclical automatic re-enrolment date and who whilst an active member met the criteria to be an eligible jobholder, and

d. who meets the criteria to be an eligible jobholder on the automatic re-enrolment date.

78. The next section provides the specification of data and calculation routines for the core functionality described in paragraph 10.

Section 3 on page 242 details the specification of data and calculation routines for wider functionality which may support an employer in their end-to-end duties.

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2.0 Specification of

‘core’ payroll-driven calculation routines

79. In this section we cover the data sources and calculation routines for the core functionality of:

• the assessment of eligibility for automatic enrolment and re-enrolment (age, earnings and pension membership) and other worker types

• the identification of a workers automatic enrolment date and the enrolment date (opt in)

• the deduction of pensions contributions according to pension scheme rules

• refunds following opt-out.

80. Section 2 is divided into six parts:

• 2.1: Overview

• 2.2: Further guidance – background information on the assessment process

• 2.3: Tables of data sources

• 2.4: Specification of calculation routines

• 2.5: Reports capability

• 2.6: Record-keeping

81. The specification of the data routines starts on page 164.

2.1 Overview

82. Using the data in this section, the system will be able to calculate:

• whether a worker has qualifying earnings in any relevant period

• whether a worker is an eligible jobholder (and therefore must be automatically enrolled or re-enrolled)

• whether a worker is a non-eligible jobholder

• whether a worker is an entitled worker

• the date automatic enrolment must be effective from and contributions deducted

• the date opt in must be effective from and contributions

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83. The calculation routines described in this section make use of:

• automatic enrolment data – page 164

• worker data – page 174

• data derived by the payroll (or other) system – page 193 84. In this section we assume that an automated system will carry out

an assessment each time it is run. Flags are used in this guidance to indicate where an employer may not need to take any action on the output from that assessment.

85. In addition we assume that a number of necessary conditions for compliance, which are not supported by software, are continuously met under the duties. These assumptions are:

• prior to becoming subject to the duties, employers have in place a pension scheme/pension schemes that meet the relevant

‘qualifying scheme’ criteria or ‘automatic enrolment scheme’

criteria in order to be used under the duties

• the employer is satisfied that its chosen scheme(s) continues to meet the relevant criteria on an ongoing basis. If this is not the case then the employer will have to automatically re-enrol affected members within specified time frames

• the employer has identified those on the software system who are ‘workers’

• the employer has identified the workers that meet the

definition of ‘working or ordinarily working in the UK under the worker’s contract’ and it is these workers that will undergo the assessment of age and earnings in the software system. Anyone employing a worker who works, or ordinarily works, in the UK under a worker’s contract will have duties under the Pensions Act 2008

• the worker remains an active member of the pension scheme unless an act on the worker’s part causes them to cease active membership (ie they decide to terminate membership, leave work or retire). If anything is done by the employer, pension scheme or any other third party to interrupt active membership then the employer will be obliged to automatically re-enrol the affected jobholder within specified time frames.

86. The approach in this guidance is one way of achieving the necessary function within the system. However, there may be other ways to achieve the same function. It is for developers to decide what is appropriate within their system(s).

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2.0 Specification of ‘core’ payroll-driven calculation routines

2.2 Further guidance – Assessment of qualifying earnings

87. In this part we provide background information on some of the key requirements of the assessment process which underpin the data and calculation routines starting on page 164. The assessment process is described between paragraphs 91 to 188.

88. An employer must assess each member of their workforce to identify into which category of worker they fall. This will determine what duties the employer will have in relation to each of those workers.

89. There must be an individual assessment of these criteria for each worker. If an employer has multiple contracts with the same individual, the employer will need to determine how they apply the duties to those multiple contracts. See Detailed Guidance no. 3 – Assessing the workforce. As a consequence of this determination some or all or the contracts may need to be aggregated for the assessment of a worker.

90. The criteria for each of three categories of workers for whom the employer principally has duties includes an assessment of earnings. The legislative requirement is that ‘qualifying earnings are payable by the employer in the relevant pay reference period’

above certain thresholds.

91. There are three steps to making that assessment of earnings:

• Step A: Identify the relevant pay reference period – the period of time in which earnings are being measured

• Step B: Identify what is payable in that period – the earnings to measure in that period of time

• Step C: Compare what is payable with the lower level of qualifying earnings and the earnings trigger for automatic enrolment for that period – the threshold for that period of time against which to measure the identified earnings.

92. From 1 November 2013 there are two definitions of a pay reference period in legislation and an employer will be able to choose which definition they wish to adopt as the basis of their assessment process for assessing earnings in step A.

93. One definition of a pay reference period is aligned to tax weeks or months and one is aligned to the period by reference to which a person is paid their regular wage or salary.

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94. Employers with a staging date before 1 November 2013 will be using the definition of a pay reference period aligned to the period by reference to which a person is paid their regular wage or salary.

From 1 November 2013 they can choose to change to using the definition aligned to tax weeks or months at any point on or after 1 November 2013. For more information on changing the definition of a pay reference period for the purposes of the assessment of the worker see paragraphs 210 to 221.

95. There is nothing that prevents an employer using one definition for some workers and the other definition for other workers.

96. An employer may wish to use the definition of a pay reference period aligned to tax week or months if:

• they wish to incorporate the assessment of workers easily into their payroll process. This is because this definition uses the existing tax calendar in payroll

• they operate 4, 4, 5 week earnings period (see paragraphs 358 to 361) but have an interval between payments of a month. This is because under this definition the pay reference period will be a month whereas under the alternative it is pay reference period of four weeks, four weeks and then five weeks recurring

• they wish to align the pay reference period with the start of the tax year when any changes to the thresholds for qualifying earnings will take effect. This is because it will avoid a pay reference period spanning the 6 April change and the need to apply the threshold for the previous tax year and the threshold for the new tax year in one pay reference period.

97. An employer may wish to use the definition of a pay reference period aligned to the period by reference to which the worker is paid their regular wage or salary if:

• they had a staging date before 1 November 2013 and their assessment process is already based on this definition of pay reference period

• they have workers with a contractual relationship of less than 1 week, as these workers do not have a pay reference period under this definition.

98. Identifying the relevant pay reference period using the definition aligned to tax weeks or months is described in paragraphs 104 to 153.

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99. Identifying the relevant pay reference period using the definition aligned to the period by reference to which the worker is paid their regular wage or salary is described in paragraphs 154 to 168.

Developers should note that this is unchanged by the legislative changes and there are only minor changes to the content from the last version of this guidance.

100. It is important to note that whichever definition of pay reference period an employer chooses to use, steps B and C are unchanged by the amendment to the legislation introducing the second definition. Guidance on both of these steps can be found at paragraphs 169 to 188.

Identify the relevant pay reference period

101. The first step in assessing whether qualifying earnings are payable in the relevant pay reference period is to identify the relevant pay reference period. And the first step in identifying the relevant pay reference period is for the employer to identify their usual pay reference periods.

102. An employer can now choose to define the pay reference period in one of two ways:

a. By reference to a tax week or month (described in paragraphs 104 to 153), or

b. By reference to the period by which the worker is paid their regular wage or salary (described in paragraphs 154 to 168).

103. An employer can choose to use one definition for some workers and the other definition for other workers therefore software solutions should allow employers to use either or both definitions.

Definition of pay reference period aligned to the tax periods

104. Under this definition the length of the pay reference is:

a. a period equal in length to the usual interval between payments of the person’s regular wage or salary, or

b. a period of one week whichever is the longer.

105. A pay reference period starts:

a. where the person is paid monthly, on the first day of a tax month b. where the person is paid weekly, on the first day of a tax week

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c. where the person is paid at intervals of multiple weeks, on – 6th April; or

– the first day of the tax week which commences immediately after the expiry of a pay interval period beginning on 6 April d. where the person is paid at intervals of multiple months, on

– 6th April; or

– the first day of the tax month which commences immediately after the expiry of a pay interval period beginning on 6 April.

A ‘pay interval period’ is defined under the legislation as a period equal in length to the usual interval between payments of the worker’s regular wage or salary and each whole multiple of that period.

106. Under this definition the first action for an employer is to identify the usual pay interval between payments of regular wage or salary for each worker. This is because the length of the usual interval between payments of regular wage or salary sets the length of a pay reference period under the legislation.

107. For example, if the interval between payments of a worker’s regular wage or salary is a four week period the length of a pay reference period is four weeks.

108. There are three things to note here. Firstly the length of the pay reference period is whichever is the longer of a week and the usual interval between payments of the worker’s regular wage or salary.

This means that if the usual interval between payments of a worker’s regular wage or salary is less than a week then the length of the pay reference period for that worker will be one week. For the purposes of assessment under this definition the worker is in our view treated as if weekly paid.

109. The second thing to note is that the length of the pay reference period is set by the usual intervals between the payments of the worker’s regular wage or salary. This means where an employer, say for administrative reasons, has a different interval for some payments this will not affect the length of the pay reference period for that worker.

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110. For example, an employer pays their worker on the last calendar day of each month. For Christmas they close down and so bring forward their pay day to 18 December. The interval between payments from November to December in this case is only three weeks whilst the interval between payments from December to January is five weeks. However, as for the remainder of the year the interval between payments for the worker of their regular wage or salary is of a month then the usual interval between payments is one month even in December and January where the length of the interval between payments is different because of the administrative arrangement.

111. Similarly when an employer agrees to pay holiday pay in advance (whether this is an administrative or contractual arrangement) does not affect the usual interval between payments of regular wage or salary.

112. Sometimes the usual interval between payments of regular wage or salary appears to change from payment to payment with no usual interval but can, nonetheless, be treated as having a usual interval.

For example, a paid monthly worker who is paid on the last working day of the month will sometimes have a pay interval of 28 days, sometimes the interval will be 30 days or 31 days and so on. In this case, in our view the interval between payments is set to be one month and the variations are just due to the variation of a calendar day falling at the weekend or on a bank holiday. Therefore, the usual interval between the payments of the worker’s regular wage or salary can be considered to be monthly.

113. The final thing to note is that if there is no usual interval between the payments of regular wage or salary then in our view the pay reference period defaults to being one week in length.

114. This is a relevant consideration for employers with workers on zero hours contracts or equivalents who contractually are only paid when they do work. If there is no usual interval between the payments of the worker’s regular wage or salary then the pay reference period will be a week.

115. However there may be circumstances where an employer with such workers may be able to consider that there is a usual interval between payments of wage or salary.

116. For example, an employer, who operates a weekly payroll, recruits a worker on an hourly wage. The employer cannot know in advance how many hours the worker will work each week but they have an expectation that it will be at least one shift a week. The employer can consider that the usual interval between payments of regular

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117. This expectation is not invalidated if it turns out that there are odd weeks where no work is done and therefore no payments are made.

In our view occasional periods where there is no work and therefore no payment can be discounted when identifying the usual interval between payments, just as variation of a day or two because of weekends or bank holidays can be discounted in paragraph 112.

The start dates of the pay reference period

118. Once the employer has determined the length of the pay reference period they will know which pay reference period calendar to use. The start dates of the pay reference period vary depending upon the length of the pay reference period. The length of the pay reference period is determined by the usual interval between payments of regular wage or salary or is a week. We describe the start dates of pay references for the common intervals between payments of:

• one week

• two weeks (fortnightly)

• four weeks (four-weekly)

• one month

• three months (quarterly)

• six months (bi-annual)

• 12 months (annual).

119. Where the usual interval between payments is not one of these the start dates of the pay reference period will have to be derived.

The pay reference period dates for pay reference period of a week or a multiple of weeks are described below. Pay reference period dates for pay reference periods of a month in length or a multiple of months are described at paragraphs 133 to 143.

Pay reference periods of a week in length or a multiple of weeks

120. Where the worker is paid weekly, a pay reference period starts on the first day of a tax week. Some workers with a pay reference period of a week in length will not be paid weekly for example workers with the usual interval between payments of regular wage or salary of less than a week. Such workers are, in our view, treated as being paid weekly for the purposes of this definition (see paragraph 108 above).

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121. Where the length of the pay reference is a multiple of weeks, for example, two weeks (fortnightly) the pay reference period starts on 6 April each year and the first day of the tax week which commences immediately after the expiry of a ‘pay interval period’ beginning on 6 April.

122. A ‘pay interval period’ is a period equal in length to the usual interval between payments of the worker’s regular wage or salary and each whole multiple (ie, 2, 3, 4, 5, 6 etc) of a two week period.

So, in the example of a pay reference of two weeks duration the first pay reference period starts on 6 April and lasts for the first pay interval period of two weeks ending on 19 April. The first day of the tax week after 19 April is 20 April (the start of tax week 3).

123. The next pay reference period starts on the first day of the tax week after the expiry of a pay interval period which starts on 6 April and lasts for the next whole multiple of two weeks. The next whole multiple of a two week period is a four week period. A four week period that starts on 6 April ends on 3 May. The first day of a tax week that starts after 3 May is 4 May (the start of tax week 5).

124. In this way the pay reference period calendar for pay reference periods which are a week in length or a multiple of a week can be derived. The resulting calendars match the tax week calendar or existing practice for multiple of tax weeks. The principles above in deriving the calendar will be relevant if the multiple of weeks is not one of the common intervals of weekly, fortnightly or four-weekly.

125. The tables below detail the start and end date for the pay reference periods in a tax year for pay reference periods of one week, two weeks (fortnightly), and four weeks (four-weekly).

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Table 2

Weekly pay reference period calendar

Tax week Non-leap year PRP Leap year PRP

1 6 Apr to 12 Apr 6 Apr to 12 Apr

4 27 Apr to 3 May 27 Apr to 3 May

5 4 May to 10 May 4 May to 10 May

9 1 Jun to 7 Jun 1 Jun to 7 Jun

10 8 Jun to 14 Jun 8 Jun to 14 Jun

11 15 Jun to 21 Jun 15 Jun to 21 Jun 12 22 Jun to 28 Jun 22 Jun to 28 Jun

13 29 Jun to 5 Jul 29 Jun to 5 Jul

14 6 Jul to 12 Jul 6 Jul to 12 Jul

15 13 Jul to 19 Jul 13 Jul to 19 Jul 16 20 Jul to 26 Jul 20 Jul to 26 Jul

17 27 Jul to 2 Aug 27 Jul to 2 Aug

18 3 Aug to 9 Aug 3 Aug to 9 Aug

22 31 Aug to 6 Sep 31 Aug to 6 Sep

23 7 Sep to 13 Sep 7 Sep to 13 Sep

continued...

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26 28 Sep to 4 Oct 28 Sep to 4 Oct

27 5 Oct to 11 Oct 5 Oct to 11 Oct

30 26 Oct to 1 Nov 26 Oct to 1 Nov

31 2 Nov to 8 Nov 2 Nov to 8 Nov

35 30 Nov to 6 Dec 30 Nov to 6 Dec

36 7 Dec to 13 Dec 7 Dec to 13 Dec

39 28 Dec to 3 Jan 28 Dec to 3 Jan

40 4 Jan to 10 Jan 4 Jan to 10 Jan

41 11 Jan to 17 Jan 11 Jan to 17 Jan 42 18 Jan to 24 Jan 18 Jan to 24 Jan 43 25 Jan to 31 Jan 25 Jan to 31 Jan

44 1 Feb to 7 Feb 1 Feb to 7 Feb

48 1 Mar to 7 Mar 29 Feb to 6 Mar

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49 8 Mar to 14 Mar 7 Mar to 13 Mar

52 29 Mar to 4 Apr 28 Mar to 3 Apr

53 in 1st instance

5 Apr to 5 Apr or 5 Apr to 11 Apr

Tax weeks Non-leap year PRP Leap year PRP 1 & 2¹ 6 Apr to 19 Apr 6 Apr to 19 Apr 3 & 4 20 Apr to 3 May 20 Apr to 3 May 5 & 6 4 May to 17 May 4 May to 17 May 7 & 8 18 May to 31 May 18 May to 31 May 9 & 10 1 Jun to 14 Jun 1 Jun to 14 Jun 11 & 12 15 Jun to 28 Jun 15 Jun to 28 Jun 13 & 14 29 Jun to 12 Jul 29 Jun to 12 Jul 15 & 16 13 Jul to 26 Jul 13 Jul to 26 Jul 17 & 18 27 Jul to 9 Aug 27 Jul to 9 Aug 19 & 20 10 Aug to 23 Aug 10 Aug to 23 Aug 21 & 22 24 Aug to 6 Sep 24 Aug to 6 Sep 23 & 24 7 Sep to 20 Sep 7 Sep to 20 Sep 25 & 26 21 Sep to 4 Oct 21 Sep to 4 Oct 27 & 28 5 Oct to 18 Oct 5 Oct to 18 Oct 29 & 30 19 Oct to 1 Nov 19 Oct to 1 Nov 31 & 32 2 Nov to 15 Nov 2 Nov to 15 Nov

continued...

Table 3

Fortnightly pay reference period calendar

1

We understand that normal payroll practice would be for this period to show as week 2.

However, for automatic enrolment the first day of a pay reference period is a key date and that is why it is shown here as tax week 1 and 2, and the equivalent in the remainder of the table.

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33 & 34 16 Nov to 29 Nov 16 Nov to 29 Nov 35 & 36 30 Nov to 13 Dec 30 Nov to 13 Dec 37 & 38 14 Dec to 27 Dec 14 Dec to 27 Dec 39 & 40 28 Dec to 10 Jan 28 Dec to 10 Jan 41 & 42 11 Jan to 24 Jan 11 Jan to 24 Jan 43 & 44 25 Jan to 7 Feb 25 Jan to 7 Feb 45 &46 8 Feb to 21 Feb 8 Feb to 21 Feb 47 & 48 22 Feb to 7 Mar 22 Feb to 6 Mar 49 & 50 8 Mar to 21 Mar 7 Mar to 20 Mar 51 & 52 22 Mar to 4 Apr 21 Mar to 3 Apr 53 in 1st

instance

Table 4

Four-weekly pay reference period calendar

Tax weeks Non-leap year PRP Leap year PRP 1 – 4² 6 Apr to 3 May 6 Apr to 3 May 5 – 8 4 May to 31 May 4 May to 31 May 9 – 12 1 Jun to 28 Jun 1 Jun to 28 Jun 13 – 16 29 Jun to 26 Jul 29 Jun to 26 Jul 17 – 20 27 Jul to 23 Aug 27 Jul to 23 Aug 21 – 24 24 Aug to 20 Sep 24 Aug to 20 Sep 25 – 28 21 Sep to 18 Oct 21 Sep to 18 Oct 29 – 32 19 Oct to 15 Nov 19 Oct to 15 Nov 33 – 36 16 Nov to 13 Dec 16 Nov to 13 Dec 37 – 40 14 Dec to 10 Jan 14 Dec to 10 Jan 41 – 44 11 Jan to 7 Feb 11 Jan to 7 Feb

2

We understand that normal payroll practice would be for this period to show as week 2.

However, for automatic enrolment the first day of a pay reference period is a key date and that is why it is shown here as tax week 1 and 2, and the equivalent

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45 – 48 8 Feb to 7 Mar 8 Feb to 6 Mar 49 – 52 8 Mar to 4 Apr 7 Mar to 3 Apr

5 Apr to 5 Apr or 5 Apr to 2 May

4 Apr to 5 Apr or 4 Apr to 1 May

126. The first pay reference period of each tax year starts on 6 April and

‘resets’ the calendar for each tax year.

127. This means that there appears to be overlapping pay reference periods at the change in the tax year. In most circumstances however the last pay reference period is ended early on 5 April to avoid this overlap. Ending the pay reference period on 5 April depends upon when qualifying earnings are payable. As we do not explain payable qualifying earnings until step B, more information about the pay reference periods at the tax year change can be found at paragraphs 189 to 209.

128. If the usual interval between payments of regular wage or salary is not fortnightly or four-weekly but is another multiple of weeks (eg five-weeks) the length of the pay reference period will be equal to that multiple of weeks. Where an employer has a pay reference period of a length equal to such a multiple of weeks they should apply the same method as described in paragraphs 36 to 38 to derive the pay reference period calendar.

129. For example, if the usual interval between payments of regular wage or salary is five weeks, then a ‘pay interval period’ is, in this case, a period equal in length to five weeks and each whole multiple of a five week period. The first pay reference period starts on 6 April and lasts for the first pay interval period of five weeks ending on 10 May. The first day of the tax week after 10 May is 11 May (the start of tax week 6).

130. The next pay reference period starts on the first day of the tax week after the expiry of a pay interval period which starts on 6 April and lasts for the next whole multiple (ie, two) of five weeks. The next whole multiple of a five week period is a 10 week period. A 10 week period that starts on 6 April ends on 14 June. The first day of a tax week that starts after 14 June is 15 June (the start of tax week 11).

131. These steps are repeated until the end of the tax year to give the starts dates of each pay reference period in the year (see example calendar below).

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Example of five-weekly pay reference period calendar

Tax weeks Non-leap year PRP Leap year PRP 1 – 5 6 Apr to 10 May 6 Apr to 10 May 6 – 10 11 May to 14 Jun 11 May to 14 Jun 11 – 15 15 Jun to 19 Jul 15 Jun to 19 Jul 16 – 20 20 Jul to 23 Aug 20 Jul to 23 Aug 21 – 25 24 Aug to 27 Sep 24 Aug to 27 Sep 26 – 30 28 Sep to 1 Nov 28 Sep to 1 Nov 31 – 35 2 Nov to 6 Dec 2 Nov to 6 Dec 36 – 40 7 Dec to 10 Jan 7 Dec to 10 Jan 41 – 45 11 Jan to 14 Feb 11 Jan to 14 Feb 46 – 50 15 Feb to 21 Mar 15 Feb to 20 Mar

22 March to 5 April or 22 Mar to 25 Apr

21 Mar to 24 Apr

132. As with the weekly, fortnightly and four-weekly pay reference periods, the first pay reference period of each tax year starts on 6 April and ‘resets’ the calendar for each tax year. In this case however it is more likely that there will be overlapping pay reference periods for the purposes of assessment although in some circumstances the pay reference period will be ended on 5 April. Again paragraphs 189 to 209 have more detail.

Pay reference periods of a month in length or a multiple of months

133. Where the worker is paid monthly, the pay reference period starts on the first day of the tax month. Where the length of the pay reference period is a multiple of a month, for example three months, the pay reference period starts on 6 April each year and the first day of the tax month which commences immediately after the expiry of a ‘pay interval period’ beginning on 6 April.