Auto Enrolment: Employees and Contracts of Employment

Auto enrolment poses many questions in relation to contracts of employment, and how different types of workers should be dealt with.

Below are some commonly asked AE questions relating to employees and their contracts of employment.

Should I refer to Auto Enrolment details in the contract of employment?

Employers should make reference to Auto Enrolment in the contract of employment, to confirm the organisation’s compliance with the legislation. However, employers are advised not to include specific auto enrolment details. Including long winded terms in the contract may result in the creation of parallel duties in the contract and under the Pensions Act. The advice to employers is to keep the contract as straight forward as possible.

What if our contracts of employment already contain details of our existing pension scheme?

In the past it has been quiet common for employment contracts to state the existence of a pension scheme including contribution rates, as well as eligibility criteria. However, employers should be mindful that the statutory obligations to implement auto enrolment take precedence over the contractual position, if this is not compliant with the statutory obligations. As a result, many employment contracts will be out of date once the employer’s staging date for auto enrolment is imminent.

If your company pension scheme has been approved as a qualifying pension scheme, and employees are already members, you do not have a duty to auto enrol them and can instead opt for contractual enrolment.

However, if the existing pension scheme is not a qualifying scheme, it may be worth revising your contracts of employment, otherwise you may end up being contractually obliged to provide a company pension scheme to an employee as well as meet auto enrolment obligations.

For new employees joining a company, can we wait until their probationary period of 6-months has been completed before auto-enrolling them in the pension scheme?

Eligible jobholders will be entitled to be auto enrolled from their first day of employment.

Employers can however postpone auto-enrolment for a period of up to 3 months to delay the enrolment of a new employee. The maximum deferment is 3 months, and so if a probation period is set for 6 months, a period of postponement will not cover the whole probation period. A new employee must therefore be auto-enrolled after the deferred period even if their probationary period is not yet complete.

New employees must, however, be supplied with certain information about the postponement of their rights, including the fact that they may still opt-in voluntarily. This information must be given within 1 month of the commencement of the postponement period.

Considering the above, employers are advised to review their probation clauses within the contract of employment. Any clause which infers that employees will not be entitled to pension entitlements until they have successfully completed their probation period will need to be amended.

We take on a lot of agency workers. Who is responsible for their auto enrolment, and who should pay their employer contributions?

Agency workers have the right to be automatically enrolled into a pension scheme, if they meet the eligibility criteria. These workers can be the responsibility of either the agency which supplies them or the client business which uses their services, depending on the wording of the contract and the payment arrangements. However, as a general rule, the person who pays an agency worker will be responsible for the automatic enrolment and for making employer contributions on their behalf.

A postponement period, as discussed above, may be used and this would be especially useful if the appointment is short term, i.e. less than 3 months’ duration as it may avoid the need to auto enrol at all.

How will auto-enrolment affect casual workers/ temporary workers/ zero hours workers?

The requirement to be auto-enrolled is triggered by age and earnings levels, rather than the length of time a person works for you.

If you employ staff whose hours vary, pay fluctuates, are seasonal or are on short-term contracts then the legal auto enrolment duties will apply.

Employer duties will apply each time work is undertaken by these individuals and employers will need to assess them individually each time payroll is run.

If the employee is due to work for less than three months you can use the three-month postponement period.

How is maternity or paternity leave treated?

Employees who are receiving maternity or paternity pay, should be treated in the same way as other workers.

What happens if someone works for more than one Employer?

Each employer will be required to fulfil their employer auto enrolment duties, ignoring any other employment or earnings that the worker has.