auto-enrolment PRPs
...TIMING OF THE ADOPTION NEEDS TO BE CAREFULLY CONSIDERED
April depends upon whether and when qualifying earnings are payable. If for a PRP which starts on 5 April (or 4 April, in a leap year) qualifying earnings for that period are payable on or after 6 April, the PRP ends on 5 April. But if the earnings are payable before 6 April, the PRP does not end but runs alongside the first PRP in the next tax year. If qualifying earnings are paid in the short PRP, an assessment must be performed for this period using those earnings. In such a case, the assessment will use the pre-6 April rates for the earnings trigger and qualifying earnings bands. However, the 6 April rates will apply to all PRPs starting on 6 April.
Example – A weekly-paid worker reaches age 22 on 10 April. Her employer uses the tax-period definition. If qualifying earnings are payable to her on 5 April the relevant PRP would run from 5 April to 11 April, as the assessment date (i.e. 10 April) falls within this period. In the PRP commencing 5 April qualifying earnings of £150 are payable to her on 5 April. Auto-enrolment does not occur as the earnings are below the earnings trigger. In the PRP running 6–12 April, qualifying earnings of £200 are payable on 12 April. As these exceed the earnings trigger auto-enrolment occurs with effect 10 April (unless the employer decides to postpone enrolment).
Adopting the tax-period definition Employers adopting the tax-period definition of PRP should be aware that at the time of the adoption there will be overlapping PRPs as there is no provision in legislation to end the last PRP under the original definition and start the first PRP under the tax-period definition. The overlap duration may be a few days or perhaps many days if the worker is paid monthly (or four-weekly, etc). Adopting the tax-period definition does not mean that the employer has to amend
the pay interval or the contractual basis on which the worker is paid. The timing of the adoption needs to be carefully considered. Were it to occur at the end/start of a tax year, it is important the appropriate rates of earnings trigger and qualifying earnings bands are used for the assessments in each PRP. An implication of overlapping PRPs is that the qualifying earnings payable in each of the two PRPs may well be those payable on the same date.
Example – An employer decides to adopt the tax-period definition from April. The pay interval is a month, and the PRP under the original definition ran from the 16th of one month to the 15th of the next. Pay day is usually the 15th. At the time of the change-over there will be a PRP under the original definition running from 16 March to 15 April, overlapping with the PRP under the tax-period definition running from 6 April to 5 May. Accordingly, any assessment performed for the PRP starting on 16 March under the original definition will use the earnings trigger and qualifying earnings bands in force pre-6 April. If the worker is not auto-enrolled on 16 March a further assessment may have to be performed for the PRP starting on 6 April using the post-5 April earnings trigger and qualifying earnings bands.
Staging date within a PRP Guidance published by The Pensions Regulator is somewhat reticent on the treatment where the employer’s staging date falls within a PRP, irrespective of the definition being used. Although the staging date is always the first day of a calendar month, this may fall at any time during a PRP. This has implications for identifying the relevant PRP, the assessment of earnings and the calculation of pension contributions.
Example – Take a staging date of Friday 1 August 2014. Where the original definition is being used, and the worker is paid weekly, the relevant weekly PRP might, for example, run Sunday 27 July to Saturday 2 August. Where, however, the tax-period definition is in use and the worker is paid monthly, the relevant monthly PRP will run from 6 July to 5 August.
In each of the above Example’s two scenarios the pay day in the relevant PRP may well fall before the staging date. It is the qualifying earnings payable on that pay day which are used for auto-enrolment assessment. The software performing the assessment needs to be able to identify and use qualifying earnings paid on a pay day prior to the staging date but yet within the relevant PRP.
Calculating contributions adds further complications, as they are due only on that part of the earnings for the period from the auto-enrolment date to the end of the relevant PRP. However, a pension deduction cannot be made from pay before the staging date, so the first employee contribution will be deductible from the first pay day falling on or after the staging date. The employer contribution will also fall due then. (This presumes the employee’s qualifying earnings reach the earnings trigger.)
It is of course open to the employer to use postponement, if the scheme rules permit this.
It is also possible, depending on the scheme rules, for pension contributions to commence not on the staging date but from the start of the next PRP. The software performing the calculation of contributions must be able to calculate contributions in accordance with the scheme rules and if required bring into account the earnings paid in the relevant PRP.
Employers are responsible for satisfying themselves that the pension scheme they will be using meets a number of qualifying criteria, including, where relevant, a member entitlement equivalent to the minimum contribution level set out in legislation. If the scheme meets the qualifying criteria, then the contributions to be deducted and paid are determined by the pension scheme itself.
Comment
It is essential that payroll professionals understand the implications of adopting the tax-period definition and what their software is able to do and what the pension scheme rules set out regarding membership and contributions. It is also suggested that the following should be read: Detailed guidance for employers - Appendix E: The relevant pay reference period for the purposes of the minimum contribution entitlement (
www.thepensionsregulator.gov.uk/docs/ dg-4-appendix-e.pdf).
PayrollProfessional 29
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