Payroll - Assessing workers for auto enrolment
Gamma Limited are a small manufacturing Company who were were unsure as to how they should assess qualifying earnings for the purposes of automatically enrolling one of their employees who would shortly turn 22 - This example demonstrates the complexity of the Workplace Pensions legislation and the need to be aware of the rules surrounding the new legislation
Gamma Limited need to consider the following rules when assessing this employee
Automatic enrolment is triggered from the assessment date and contributions are calculated on the earnings paid from the assessment date, regardless of at which point in the pay reference period the assessment date falls. The key word is ‘payable’. Payable means earnings actually paid in the pay reference period, also what is due to paid, or was due to be paid, in the pay reference period. This means that Gamma Limited must consider what is due to be paid in the relevant pay reference period, regardless of to what period that payment relates. For example, if a bonus is due to be paid in March in relation to performance in January, then this is included in the qualifying earnings due to be paid for March, not January.
The employee in question is paid monthly on the 15th of the month in respect of work done between the 1st and the last day of the calendar month. He is paid in arrears and payroll closes on 3rd of the month. His basic monthly salary is £650. On 30 July he was awarded a bonus of £100. On 5 August he worked some overtime, for which he earned £50. He turns 22 on 24 August. Gamma Limited needed to know that this is the date on which it must assess this employee. The first step for Gamma Limited is to work out the relevant pay reference period, they know that they pay this employee by reference to the period between the 1st of each month and the last, therefore operating calendar-monthly pay reference periods. Since this employee's 22nd birthday is on 24 August, the relevant pay reference period for him is the one that runs from 1 August to 31 August.
The next step for Gamma Limited is to establish what qualifying earnings are payable to this employee in the period 1 August to 31 August. This will be what is payable on 15 August. Because this employee is paid in arrears, the amount that is payable on 15 August relates to the work done between 1 July and 31 July. Therefore Gamma Limited will assess that the qualifying earnings payable on 15 August will be £750 (basic salary of £650 + £100 bonus on 30 July). The overtime that this employee earned on 5 August may be earned during the period 1 August to 31 August but it is not payable until 15 September. Therefore it is disregarded in the assessment of qualifying earnings payable during the period 1 August to 31 August.