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Workplace Pensions – are you compliant??

This is a cautionary scenario about the failure to set up and adjust your workplace pensions to make sure that you and your employees don’t lose out!!

Recently a new client had 2 workplace pension schemes set up by their previous payroll bureau, with two different providers. The client had assumed that both schemes were set up the same, ie: paid on unbanded earnings.

Unfortunately, they weren’t (one was on *banded earnings and the other on *unbanded earnings), and had been for two years!

*Workplace pensions based on banded earnings means that the percentages paid by the employer and the employee are paid on monthly income earned in excess of £520. (ie: if an employee earns £1000 then the percentage of pension income will be paid on £480. So, if the employer pays 3% and the employee pays 5% the pension contribution will be £38.40). However, Workplace pensions based on unbanded earnings means that the percentages paid by the employer & the employee will be based on total monthly earnings. (ie:: if an employee earns £1000 then the percentage of pension income will be paid on the full £1000, so contribution using the same percentages would be £80). As you can see the difference, even on this amount, is significant.

This issue was not discovered, until the payroll had been transferred to JLP and we conducted our due diligence review, which is something we carry out with all new payroll.

The consequence of this error has cost the employees of the company a considerable deficit in pension contributions. Not only that they have also fallen short on the growth they would have achieved, throughout those years, on the regular increases and higher value of their pension plans.

To re-work the deficit would result in the employer and employees having to make a lump sum contribution to the plans and in this current climate, the employees especially don’t have the financial capacity to do this. So, the solution we agreed, with the consent of the Directors and employees, was to set up a new Workplace Pension to be based on unbanded earnings for everyone.

With this in mind, this is a timely word of warning: There are some payroll providers that have to manually adjust payroll software with any increase to employees' salaries, following notification.

However, they omit to increase the figure amount, in line with the salary increase, that should be paid into the workplace pension. This has serious consequences, not only because of the deficit to each employee’s plan, but because of the non-compliance of the pension regulators rules and regulations, which could result in the company being subjected to a heavy fine.

So, please please check and make sure that your workplace pensions are set up correctly and adjustments are made in line with any pay increases that are extended to your employees.

If you are unsure, or have a question about this or any other payroll query, please don’t hesitate to get in touch. Jacqui is your Payroll Pixie that loves nothing more than granting companies the gift of time, saving them money along the way. Her passion for helping people knows no bounds and her favourite past time is meeting new people, if a glass of wine is included, all the better!

Jacqui Lilley JLP Payroll Services 85 Whitley Court Road, Quinton, Birmingham, B32 1EZ Tel: 0121 422 0550 Mobile: 07749 345489 E-Mail: Website:


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