An estimated 7 million people in the current workforce are not saving enough for an adequate income in retirement. Over the next 30 years, the number of retired people in the UK is set to increase by more than 30 per cent, and there will be relatively fewer working people.

To combat the demographic and economic challenges associated with an ageing society and reform the pensions system, the government introduced the Pensions Act 2008, which has brought with it Auto Enrolment. It is hoped that this will encourage a retirement savings culture in the UK and empower workers to better save for their futures.

Auto Enrolment legislation represents a fundamental change to workplace pensions for small business owners. Being staged over six years, it means that business of all sizes will have a legal obligation to start paying into their employees’ pension funds, to help ensure staff are adequately prepared for retirement. Every employer must automatically enrol eligible employees (depending on age and salary level) into a workplace pension scheme in accordance with their staging date.

As of June 2015, businesses with fewer than 30 employees will begin to stage. As many as 14,000 of the country’s smallest businesses – including people who only employ one person – will be forced to comply with legislation requiring them to automatically enrol their employees into a workplace pension scheme. Those who do not comply risk being faced with significant financial penalties from The Pensions Regulator, the body which governs the programme.

See also: Top five HR myths to be wary of

The challenge for many small business owners will be setting up a workplace pension scheme for the very first time. To help employers prepare and understand their obligations around Auto Enrolment, Steven Watmore, Payroll & AE specialist at Sage UK, shares his a step-by-step guide on how employers can get organised.

1.Don’t delay: find out your staging date in advance

Although it’s tempting to put it off, Auto Enrolment can be complex – a little like opening up Pandora’s box! For small businesses, HMRC warns it may take as long as 12 months to get a compliant scheme up and running.

Business owners should find out the date their Auto Enrolment duties come into effect as soon as possible. It’s essential to factor in the time required to plan finances, sort out administration as well as integrating payroll into a pension scheme. Although the tasks may not be huge they may take longer than anticipated, particularly when dealing with pension providers or third parties.

If you haven’t already received a letter informing you of your staging date, it can be found at The Pensions Regulator website using your PAYE reference number. For firms who don’t pay their workforce through a PAYE scheme, their staging date will be 1 April 2017.

The longer you leave to prepare, the easier it will be.

2.Research pension providers and seek guidance from a financial advisor

As the deadlines for Auto Enrolment roll closer, demand for pension providers is going to rise exponentially.

Many employers have concerns they will be faced with uncompetitive rates for their pension scheme because of their business size. For small firms with no previous experience of running workplace pension scheme it would be prudent to seek guidance from an independent financial advisor, an accountant or your payroll provider about potential options.

To ensure your business has a choice, it is vital to start shortlisting providers early on. Investing time to research your options will help to ensure you choose the scheme that works best for your workforce.

It is recommended that firms seek a pension provider that enables them to manage the process online and which integrates with their payroll system.

3.Avoid an administrative headache with up-to-date payroll software

Good news, as help is at hand for small firms navigating the complex process. By using the latest payroll software, the administrative procedure can be simplified. This will help to minimise the associated time and cost issues, and take the pain out of the Auto Enrolment process felt by many small business owners.

4.Plan future finances well ahead of time

Auto Enrolment can be expensive for a small business. Employers must pay a regular contribution into their staff pension scheme. The starting threshold currently sits at 1 per cent of an employee’s qualifying earnings, which will rise to 3 per cent by 2018 as contributions ramp-up year-on-year.

Small business owners should not only plan for the increased administrative burden, but as the majority aren’t likely to have a pension fund already accounted for, they must also consider the impact this will have in the long-term on their future cash flow.

5.Communication is key

Under the new rules, employers are accountable for informing their workforce of the pension reforms taking place. Firms must provide employees with the correct information in writing, ensuring they are fully aware of their options and manage expectations in advance. Communications may also come from pensions or payroll providers.

However employers are not allowed to steer their staff in any particular direction, or offer incentives to opt out of Auto Enrolment. Firms found breaching these rules may be faced with significant financial penalties from The Pension Regulator.

Further reading: 5 key attributes to look for in an auto enrolment provider