What pension must you offer your employees in a small business?

What pension must you offer your employees in a small business?


Whether you own a big or a small business, there are certain conditions of employment you must provide, that all workers are entitled to in the UK. From the national living wage that all employees should receive, to the waning reliance on zero-hours contracts, the wide world of employment has continued to change over the past decade, with the introduction of new legislation which aims to further protect the employee.

One element that such legislation has changed is the working pension. In this day and age, there are certain requirements that all employers no matter what the industry or sector must offer their employees. In this blog post, we will explore this entitlement, and what pensions a small business should be providing their employees by law.

What pension are your employees entitled to?

In most cases, all employers have to offer a workplace pension to all employees. The workplace pension should be paid into by both the government, you as the employer and the employee themselves. In the case where you are not required by law to offer a pension, but an employee chooses to join one regardless, as their employer you cannot refuse their request.

Although most cases of pension enrolment are automatic, there are certain things which you must and mustn’t do in order to abide by the law. As an employer you must regularly pay the minimum contribution to the scheme on time. What constitutes a minimum amount will depend on the type of pension you have opened for your employees. You must also ensure that your employees can opt out of the pension scheme by request, in addition to allowing them to re-join at least once a year. If they leave the scheme, you must refund to them the money the employee has paid in within a month.

Rarely, there are cases in which an employer is uncomfortable in allowing all of their employees onto a pension scheme. By law however, an employer cannot persuade or force an employee to leave the scheme, or unfairly dismiss or discriminate against them for staying in it. Furthermore, the employer cannot in any way imply that someone is more likely to be employed if they opt out of the scheme.

How should you enrol employees on to a pension?

In most cases, the enrolment of new employees onto the pension scheme should be automatic. To be enrolled automatically, an individual must be: classed as a worker (a definition which will depend from employer to employer); aged between 22 years and their state pension age; earn at least £10,000 per annum and typically work in the UK.

Upon enrolment, you must provide the employee with certain information to ensure they have knowledge of their pension. This info includes: the date they were added, the type of scheme, the scheme provider, how much you and the employee will contribute each month, in addition to how an employee can opt out of the scheme in the future.

What are the consequences if you don’t offer a pension?

The legislation which establishes an employee’s entitlement to a working pension also provides the suitable ammunition to punish those employers who do not abide by it. Those employers who do not provide a pension scheme for their staff could face an unlimited fine. With automatic enrolment now a legal requirement, in addition to the minimum contribution requirement an employer must pay in, there are strict regulations which all employers must meet. If an employer in an extreme case knowingly falsifies information to The Pension Regulator in order to avoid these legal requirements, this is a criminal offence and will lead to an unlimited fine.

Setting out your business’s pension policy should be a foundational thought for your business plan. If you would like help with putting together your business plan, get in touch today! Contact us online using the form on the right or call 01604 420 420.

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