Depending on the number of workers* in your business, between 2012 and 2016, you will have to automatically enrol all eligible employees in a qualifying pension scheme and boost each employee’s contributions with contributions of your own.

Workers eligible for automatic enrolment will be:

• Those who aren’t already in a qualifying pension scheme.
• Aged between 22 years and State Pension retirement age and earning over the standard Personal Allowance for Income Tax (£7,475 in tax year 2011/2012).
• Working in Great Britain.

The qualifying scheme may be a NEST or your own Company Scheme, if it meets certain criteria.

The important point here is that the Government has set a minimum contribution for these qualifying schemes:

Minimum Contribution:  8%
Employee Pays:  4%
Tax Relief:  1%
You Pay:  3%

While eligible workers can opt out, for those choosing to contribute their 4% and allowing for 1% tax relief, this will mean you will have to contribute 3% of their 'qualifying' earnings (basic salary plus commissions, bonuses and overtime between £5,715 and £38,185 a year). This will apply immediately to all new eligible workers and those not currently in a qualifying scheme.

Workers between ages 16 and 21 or over state pension age but under 75 won't be automatically enrolled but can ask to be enrolled, and you will have to pay in for them. Low-earning workers can also ask you to arrange a pension for them, but in that case you won’t have to pay in.

What this means for you?

Research has shown that auto-enrolment is one of the most effective ways of triggering pension scheme membership and contribution. So, it is highly likely that your business will incur significant additional costs through auto-enrolment. The increase will be higher for those who don’t currently offer a Company Scheme or who don’t currently contribute to it for their employees and/or eligible workers.

The Government is proposing to introduce auto-enrolment in stages between October 2012 and October 2016, starting with the largest employers. It also plans to phase in the level of compulsory contributions rising from 1% initially to 3% by October 2017 (full implementation).

* A 'worker' is a wider category than just employees and can include some contractors or agency workers. As a general rule, if you have to pay the national minimum wage to someone or they are working under an apprenticeship, they are a worker.